13. Float [LO 19.1] An unfortunately common practice goes like this (warning: do not try this at...
Question:
13. Float [LO 19.1] An unfortunately common practice goes like this
(warning: do not try this at home): suppose you are out of money in your chequing account; however, your local grocery store will, as a convenience to you as a customer, cash a cheque for you. So, you cash a cheque for $200. Of course, this cheque will bounce unless you do something. To prevent this, you go to the grocery the next day and cash another cheque for $200. You take this $200 and deposit it. You repeat this process every day, and, in doing so, you make sure that no cheques bounce. Eventually, manna from heaven arrives (perhaps in the form of money from home), and you are able to cover your outstanding cheques.
To make it interesting, suppose you are absolutely certain that no cheques will bounce along the way. Assuming this is true, and ignoring any question of legality (what we have described is probably illegal cheque kiting), is there anything unethical about this? If you say yes, then why? In particular, who is harmed?
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9781743768051
8th Edition
Authors: Stephen A. Ross, Rowan Trayler, Charles Koh, Gerhard Hambusch, Kristoffer Glover, Randolph W. Westerfield, Bradford D. Jordan