Some firms finance their permanent working capital with short-term liabilities (commercial paper and short-term notes). Explain the impact of this decision on the profitability and risk of these firms.15 marks)

ii) Risk associated with the amount of current assets is generally assumed to decrease with increased levels of current assets. Is this assumption always correct for all levels of current assets in particular, for an excessively high level of current assets relative to the firms needs? Explain. (10 marks)