Multiple Choice:

1. An agreement by a bank which guarantees payment on the prompt arrival of a shipment of goods from an overseas supplier is called a:

• Compensating agreement.

• Blanket inventory lien.

• Line of credit.

• Factored inventory loan.

• Letter of credit.

2. Which of the following is the best definition of speculative motive?

• Bank makes proceeds of cheques deposited available the same day before cheques clear.

• The need to hold cash to take advantage of additional investment opportunities, such as bargain purchases.

• Special post office boxes set up to intercept and speed up accounts receivable payments.

• The need to hold cash as a safety margin to act as a financial reserve.

• Much like an automated teller machine card; one use is within corporations to control access to information by employees

3. The fixed cost of a securities trade:

• Will affect a firm with an average trade value of $10,000 less than a firm with an average trade value of $100,000.

• Has more impact on firms following a flexible cash policy than a firm following a restrictive cash policy.

• Has more bearing on the target cash balance as the number of trades increases.

• Varies with the average number of cheques processed in any stated period of time.

• Is normally minimal so it can be ignored when trying to establish optimal cash balance levels.