Short-term Finance Quiz

What is the primary purpose of short-term finance for a business?

• To maintain a positive cash flow

• To invest in long-term projects

• To expand into new markets

• To hire new employees

Which of the following is a common feature of a bank overdraft?

• Fixed interest rates

• No interest rates

• Interest-free for the first year

• Variable interest rates

What is a potential risk of using an overdraft?

• It requires no agreement with the bank

• The bank can demand full repayment within 24 hours

• The interest rate is fixed

• It is interest-free

What does trade credit allow a business to do?

• Get a loan from the bank

• Receive immediate payment from customers

• Pay for raw materials and stock at a later date

• Avoid paying suppliers altogether

What is a 'credit limit' in a trade credit agreement?

• The time period for repayment

• The minimum amount of credit available to the business

• The maximum amount of credit available to the business

• The interest rate on the credit

How long is a typical credit period in a trade credit agreement?

• 2 years

• 6 months

• 1 year

• 30, 60, or 90 days

What is a 'retrospective discount'?

• A discount given when a certain amount of stock is purchased

• A discount given for early payment

• A discount given for late payment

• A discount given for cash payments

Why should overdrafts be used carefully?

• They are only available to large businesses

• They are interest-free

• They can become expensive due to high interest rates

• They require no repayment

What is one reason a business might need short-term finance?

• To build a new factory

• To cover costs during a period of poor cash flow

• To launch a new product line

• To acquire another company

What is the method of payment in a trade credit agreement?

• Cash only

• Bank transfer, cheque, or card payment

• Barter system

• Cryptocurrency