Foundations Of Financial Management
17th Edition
ISBN: 9781260013917
Author: BLOCK, Stanley B., HIRT, Geoffrey A., Danielsen, Bartley R.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
Chapter 8, Problem 8DQ
Summary Introduction
To Explain: The advantages and disadvantages of commercial paper in comparison with a bank.
Introduction:
Commercial Paper:
It is a type of promissory note issued for a fixed maturity period by financial institutions or large companies for the purpose of short-term loans.
Bank Borrowings:
When a bank lends money to an individual, which is to be repaid to the bank later, it is known as borrowings from a bank. Interest is charged on such borrowings by the bank for a specific period of time.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Qd 108.
3. Consider the monetary neutrality. Suppose that the central bank changed the money supply. According to economists’ assumption on monetary neutrality, could the change affect the employment in the short-run? How about in the long-run? Short-run: Long-run:
We think of banks as being interest rate intermediaries. That is, the borrow cheaply, and then lend at higher rates, and the spread between those is their profit. But, besides interest rates, what other sorts of risks do banks face?
Chapter 8 Solutions
Foundations Of Financial Management
Ch. 8 - Under what circumstances would it be advisable to...Ch. 8 - Discuss the relative use of credit between large...Ch. 8 - Prob. 3DQCh. 8 - Prob. 4DQCh. 8 - Prob. 5DQCh. 8 - Prob. 6DQCh. 8 - Prob. 7DQCh. 8 - Prob. 8DQCh. 8 - Prob. 9DQCh. 8 - Prob. 10DQ
Ch. 8 - Prob. 11DQCh. 8 - Prob. 12DQCh. 8 - Compute the cost of not taking the following cash...Ch. 8 - Regis Clothiers can borrow from its bank at 17...Ch. 8 - Simmons Corp. can borrow from its bank at 17...Ch. 8 - Your bank will lend you $4,000 for 45 days at a...Ch. 8 - Prob. 5PCh. 8 - Prob. 6PCh. 8 - Mary Ott is going to borrow $10,400 for 120 days...Ch. 8 - Prob. 8PCh. 8 - Prob. 9PCh. 8 - Prob. 10PCh. 8 - McGriff Dog Food Company normally takes 27 days to...Ch. 8 - Maxim Air Filters Inc. plans to borrow $300,000...Ch. 8 - Digital Access Inc. needs $400,000 in funds for a...Ch. 8 - Carey Company is borrowing $200,000 for one year...Ch. 8 - Randall Corporation plans to borrow $233,000 for...Ch. 8 - Prob. 16PCh. 8 - Your company plans to borrow $13 million for 12...Ch. 8 - If you borrow $5,300 at $400 interest for one...Ch. 8 - Zerox Copying Company plans to borrow $172,000 ....Ch. 8 - Prob. 20PCh. 8 - Mr. Hugh Warner is a very cautious businessman....Ch. 8 - The Reynolds Corporation buys from its suppliers...Ch. 8 - Prob. 23PCh. 8 - Neveready Flashlights Inc. needs $340,000 to take...Ch. 8 - Harper Engine Company needs $631,000 to take a...Ch. 8 - Summit Record Company is negotiating with two...Ch. 8 - Charming Paper Company sells to the 12 accounts...Ch. 8 - The treasurer for Pittsburgh Iron Works wishes to...Ch. 8 - Prob. 2WECh. 8 - Prob. 3WE
Knowledge Booster
Similar questions
- The purpose of the inflation premium is to maintain the purchasing power of money while it is loaned to someone else. TTrueFFalse What kind of problem bad credit risks people pose to financial intermediaries ? AMoral hazard BNone of the above CAdverse Selection DFree-ridingarrow_forwardWhen nominal interest rates have hit the zero lower bound, can central banks affect the interest rates? Select one: OA. Yes: since the zero lower bound applies to nominal rates, not real rates, and it is real rates that are relevant for investment decisions. OB. No: once the zero lower bound is hit, central banks can no longer employ interest rates to stimulate economic activity. OC. Yes, but the mechanism by which central banks manipulate the interest rates that matter for spending must deviate from the banks' traditional method. OD. A and C.arrow_forwardCan you help me with this question?arrow_forward
- The central bank takes action that lowers interest rates dramatically. what is the effect of it to firm value? increase or decrease and why.arrow_forwardAll else being equal, if a central bank sells government bonds from the market it would: a. decrease the money supply. b. decrease interest rates. c. mean the supply of loanable funds would move to the right. d. most likely decrease savings in the economy.arrow_forwardD3) Finance Use covered interest rate parity (CIP) to show that a fixed exchange rate and free capital flows imply that a central bank cannot set the interest rate independently from the interest rate set by the reference currency's central bank.arrow_forward
- 3. Open market operations versus discount loans Consider an expansionary open market operation. Suppose the Federal Reserve buys government securities from the nonbank public. Suppose that the sellers of government securities cash the checks and hold on to the cash. Then, ceteris paribus, bank reserves do not change ▼ currency in circulation increases , and thus the monetary base will increase Suppose now that the Federal Reserve wants to increase the monetary base by increasing bank reserves only. Which of the following actions enables the Fed to achieve its goal? ○ Lend to commercial banks through the term auction facility Lend to the non-banking public at the discount window Require the non-banking public to repay discount loans Buy the government securities exclusively from the non-banking public By lending to commercial banks through the discount window, the Federal Reserve alters the monetary base and thus affectsarrow_forwardb. Why would one company with interest payments due in pounds sterling want to swap those payments for interest payments due in U.S. dollars? Write an example.arrow_forwardTRUE OR FALSE 1.Treasury bills are money market instruments that can be bought or sold at a discount or premium 2. Withholding taxes for treasury bills should be added to the purchase price 3. In commercial pricing, the final buying rate for the base currency should be lower than the bid rate in the inter-bank market to make a profit 4. When base currency appreciates, you will need less of a terms currency to buy 1 unit of base currency 5. Fixed Rate Treasury Notes (FXTN) provide coupon semi-annually. These securities have maturities longer than treasury bills 6. A peso liquidity trader lends at the highest bid rate to maximize profit and borrows at the lowest offer rate to minimize cost 8. If one of the mandates of the central bank is to manage inflation, then the BSP may cut rates if inflation is too low 10. A quoting bank buys the commodity/base currency at the BID RATE 11. In commercial pricing, a bank is a quoting party to the client at the same time a price taker from the…arrow_forward
- 8arrow_forwardShow that the Ricardian Equivalence does not necessarily hold if the assumption of perfect credit markets is violated which means the consumers can be liquidity constrained (e.g. due to transaction cost). More precisely, demonstrate the problem in a situation when the interest rate depends on whether the household lends or borrows in the first period. Lenders get an interest rate is rL, while borrowers face an interest rate rB, with rB > rL. Government can also borrow at the lower interest rate.arrow_forwardWhat is the link between LIBOR and central bank lombard rate: Select one alternative: LIBOR is always lower one cannot compare these indicators LIBOR is always higherarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Business/Professional Ethics Directors/Executives...AccountingISBN:9781337485913Author:BROOKSPublisher:Cengage
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Business/Professional Ethics Directors/Executives...
Accounting
ISBN:9781337485913
Author:BROOKS
Publisher:Cengage
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning