1.The risk-return trade-off in managing a firm's working capital involves which of the following? a. A trade-off between liquidity and activity. b. A trade-off between debt and equity. c. A trade-off between the firm's liquidity and its profitability. d. None of the above. 2. Which of the following is incorrect? a. Negotiable certificates of deposit are marketable receipts for funds that have been deposited in a bank for a fixed period. b. Repurchase agreements are legal contracts that involve the actual sale of securities by a borrower to the lender, with a commitment on the part of the lender to pay for the securities at the contract price plus a stated interest charge. c. Commercial paper refers to short-term, unsecured promissory notes sold by large businesses to raise cash. d. Federal agency securities are debt obligations of corporations and agencies that have been created to effect the various lending programs of the U.S. government. 3. Exchange rate risk: a. arises from the fact that the spot exchange rate on a future date is a random variable b. applies only to certain types of international businesses c. has been phased out due to recent international legislation d. all of the above 4. In the context of managing working capital, the hedging principle refers to which of the following? a. Speculation regarding the direction of short-term interest rates. b. The usage of interest rate swaps. c. Matching the maturity of the source of financing to the cash flow generating characteristics of the asset being financed. d. Protecting the firm against the risk of rising interest rates. e. All of the above. 5. The inventory loan arrangement in which all of the borrower's inventories are used as collateral is termed a: a. terminal warehouse agreement b. floating lien agreement c. chattel mortgage agreement d. field warehouse financial agreement 6. The primary source(s) of collateral for secured funds is (are): a. accounts receivable b. inventories c. a and b d. commercial paper 7. Improvements in the management of disbursements include a. FPC (field payment control) b. automated depository transfer checks c. zero balance accounts d. disbursed float 8. A firm might use current liabilities versus long-term debt for financing because: a. it reduces the chances of illiquidity. b. generally it is less costly than long-term debt. c. it offers greater flexibility. d. a and b e. b and c