Fundamentals of Credit Quiz

What is credit?

• A method of saving money.

• A form of immediate payment for resources.

• A promise to pay for something of value later.

• A type of investment in stocks.

Who are the two types of credit providers?

• Banks and insurance companies.

• Lenders and sellers of products/services.

• Investors and shareholders.

• Government and private entities.

Why do companies use credit?

• To save money for future use.

• To avoid paying taxes.

• To invest in the stock market.

• To grow and operate their business.

What is one way individuals use credit?

• To buy groceries.

• To pay for vacations.

• To invest in real estate.

• To manage day-to-day expenses with credit cards.

What are the three ways a company can fund its operations?

• Loans, grants, and donations.

• Cash, equity, and credit/debt.

• Savings, investments, and bonds.

• Revenue, profits, and dividends.

What is a benefit of using cash for funding?

• It dilutes ownership.

• It requires repayment over time.

• It has high interest rates.

• It is always accepted and very liquid.

Why might a company choose to raise equity?

• To reduce its workforce.

• To access funds without borrowing money.

• To avoid paying taxes.

• To increase its cash reserves.

What is a downside of issuing equity?

• It is risk-free.

• It does not require interest payments.

• It is cheaper than debt.

• It gives away ownership and control.

What is a benefit of using credit or debt for funding?

• It dilutes existing shareholders.

• It changes the ownership structure.

• Interest payments are tax deductible.

• It is risk-free.

What is a risk of using debt for funding?

• It is always cheaper than equity.

• It requires careful liquidity management.

• It cannot push a company into insolvency.

• It does not require interest payments.