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Multiple Choice Quiz
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1

The longer the cash cycle, the more financing a firm requires.
A)True
B)False
2

Shortage costs are costs that rise with increases in the investment in current assets.
A)True
B)False
3

Carrying costs are costs that rise with decreases in the level of investment in current assets.
A)True
B)False
4

The short-term financial policy a firm adopts will be reflected in at least the size of the firm's investment in current assets and the financing of its current assets.
A)True
B)False
5

Under a restrictive short-term financial policy, a firm keeps large balances of cash and marketable securities.
A)True
B)False
6

Under a restrictive short-term financial policy, a firm makes small investments in inventory.
A)True
B)False
7

A firm that sets liberal credit terms for its customers is likely following a flexible short-term financial policy.
A)True
B)False
8

The optimal investment in current assets occurs when the carrying costs of current assets are just equal to the shortage costs.
A)True
B)False
9

A cash budget is a forecast of cash receipts and disbursements for the next planning period.
A)True
B)False
10

A compensating balance requirement reduces the cost of a loan to a borrower.
A)True
B)False





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