Sources of Short-Term Financing
Hedging
Engage in a transaction that reduces a prior risk exposure
Nature of Lender Control
Warehousing
Goods are stored by an independent warehousing company
Trust Receipts
Acknowledges that the borrower holds the inventory and proceeds from sales in trust for the lender
Accounts Receivable Financing
Asset-Backed Public Offerings
Public offerings backed by receivables as collateral
Factoring Receivables
Selling accounts receivable to a finance company or a bank
Pledging Accounts Receivable
Using accounts receivable as collateral for a loan
Bank Credit
The Credit Crunch Phenomenon
Investment capital becomes hard to obtain, when there is a lack of funds
Anual Percentage Rate
A measure of the effective rate we have presented
Rate on Installments Loans
Calls for a series of equal payments over the life of the loan.
Interest Cost with Compensating Balances
Interest/(1-c)
Cost of Commercial Bank Financing
The effective interest rate on a loan is based on the
Method of repayment
Length of the loan
Dollar interest paid
Loan amount
Maturity Provisions
Loan
Monthly or quarterly installments
Term Loan
Credit is extended for one to seven years
Compensating Balance
Required to obtain a loan
Prime Rate and LIBOR
Rate a bank charges most creditworthy customers
London Interbank Offered Rate (LIBOR)
Trade Credit
Net Credit Position
Determined by the relationship between accounts payable and receivable
Cash Discount Policy
Incentive that a seller offers to a buyer in return for paying a bill before the due date
Payment Period
30 to 60 days
