10. Sources of short-term financing

Short-term credit, or short-term financing, is any liability that is scheduled for repayment within one year. Among the sources of short-term funds are banks, suppliers, securities firms, and insurance companies. Their securities (or obligations) can take the form of bank loans, trade credit, commercial paper, and accruals. Some types of short-term financing are easier to obtain and manage than others. Financial managers should consider the costs of the various sources of financing as part of a businesss cash management strategy.

The following statement refers to a source of short-term credit. Select the best term to complete the following sentence:

1, The use of commercial paper, bank loans, trade credit or accurrals as a source of financing is restricted to large firms with exceptionally good credit.

Pavlov Production Corporation is a very large manufacturing company. Pavlovs financial managers use many sources of financing for the companys annual borrowings, which exceed $100 million. Pavlovs credit rating is excellent. At the moment, the managers are looking to fund a $5 million payroll by issuing a note with a 30-day maturity. What type of financing is this?

Commercial paper

Trade credit

Accrual

Bank loans