Quiz on Sources of Finance

What is the primary purpose of short-term financing?

• To cover day-to-day operations

• To purchase real estate

• To finance long-term projects

• To invest in stocks

Which of the following is NOT a source of short-term financing?

• Business/Trade Credit

• Factoring AR

• Bonds

• Bank Overdraft

What is a key characteristic of long-term financing?

• It has a fixed repayment plan

• It is only available from banks

• It is less than one year

• It is used for day-to-day operations

Which of the following describes a bank overdraft?

• A type of equity financing

• A facility allowing withdrawal beyond the account balance

• A form of unsecured debt

• A fixed loan amount from the bank

What is the main advantage of using factoring accounts receivables?

• It provides immediate cash flow

• It reduces the need for inventory

• It guarantees fixed interest rates

• It eliminates the need for credit checks

Which of the following is a disadvantage of bonds?

• They may lead to bankruptcy if interest is unpaid

• They can dilute ownership

• They do not require repayment

• They are always tax-deductible

What is the primary risk associated with long-term financing?

• Higher interest rates

• Market condition changes

• Limited availability

• Short repayment terms

What does the term 'permanent working capital' refer to?

• Capital for long-term investments

• Capital to support a constant level of sales

• Capital needed for seasonal sales

• Capital for unexpected expenses

Which of the following is a characteristic of shares?

• They are a form of debt financing

• They have a fixed maturity date

• They provide guaranteed dividends

• They represent ownership in a firm

What is a disadvantage of using business/trade credit?

• It is a cheap source of finance

• It is only available to large firms

• It can strain supplier relationships

• It requires collateral