Under what circumstances would it be advisable to borrow money to take a cash discount Discuss the relative use of credit between large and small firms Which group is generally in the net creditor position, and why How have new banking laws influenced competition What is the prime interest rate How does the average bank customer fare in regard to the prime interest rate What does LIBOR mean Is LIBOR normally higher or lower than the U S prime interest rate What advantages do compensating balances have for banks Are the advantages to banks necessarily disadvantages to corporate borrowers Commercial paper may show up on corporate balance sheets as either a current asset or a current liability Explain this statement What are the advantages of commercial paper in comparison with bank borrowing at the prime rate What is a disadvantage What is the difference between pledging accounts receivable and factoring accounts receivable What is an asset backed public offering Briefly discuss three types of lender control used in inventory financing What is meant by hedging in the financial futures market to offset interest rate risks The treasurer for Pittsburgh Iron Works wishes to use financial futures to hedge her interest rate exposure She will sell five Treasury futures contracts at $138,000 per contract It is July and the contracts must be closed out in December of this year Long term interest rates are currently 13 3 percent If they increase to 14 5 percent, assume the value of the contracts will go down by 5 percent Also if interest rates do increase by 1 2 percent, assume the firm will have additional interest expense on its business loans and other commitments of $53,000 This expense, of course, will be separate from the futures contracts a What will be the profit or loss on the futures contract if interest rates go to 14 5 percent by December when the contract is closed out b Explain why a profit or loss took place on the futures contracts c After considering the hedging in part a , what is the net cost to the firm of the increased interest expense of $53,000 What percent of this $53,000 cost did the treasurer effectively hedge away d Indicate whether there would be a profit or loss on the futures contracts if interest rates dropped

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Under what circumstances would it be advisable to borrow money to take a cash discount? Discuss the relative use of credit between large and small

Under what circumstances would it be advisable to borrow money to take a cash discount?

Discuss the relative use of credit between large and small firms. Which group is generally in the net creditor position, and why?

How have new banking laws influenced competition?

What is the prime interest rate? How does the average bank customer fare in regard to the prime interest rate?

What does LIBOR mean? Is LIBOR normally higher or lower than the

U.S. prime interest rate?

What advantages do compensating balances have for banks? Are the advantages to banks necessarily disadvantages to corporate borrowers?

Commercial paper may show up on corporate balance sheets as either

a current asset or a current liability. Explain this statement.

What are the advantages of commercial paper in comparison with bank borrowing at the prime rate? What is a disadvantage?

What is the difference between pledging accounts receivable and factoring accounts receivable?
What is an asset-backed public offering?

Briefly discuss three types of lender control used in inventory financing.

What is meant by hedging in the financial futures market to offset interest rate risks?

The treasurer for Pittsburgh Iron Works wishes to use financial futures to hedge her interest rate exposure. She will sell five Treasury futures contracts at $138,000 per contract. It is July and the contracts must be closed out in December of this year. Long-term interest rates are currently 13.3 percent. If they increase to 14.5 percent, assume the value of the contracts will go down by 5 percent. Also if interest rates do increase by 1.2 percent, assume the firm will have additional interest expense on its business loans and other commitments of $53,000. This expense, of course, will be separate from the futures contracts.

a. What will be the profit or loss on the futures contract if interest rates go to 14.5 percent by December when the contract is closed out?

b. Explain why a profit or loss took place on the futures contracts.

c. After considering the hedging in part a, what is the net cost to the firm of the increased interest expense of $53,000? What percent of this $53,000 cost did the treasurer effectively hedge away?

d. Indicate whether there would be a profit or loss on the futures contracts if interest rates dropped.