Chapter 14: Short-term finance and investments

What are the main types of short-term financing?

What are the benefits and potential problems of paying suppliers late?

Why are trade payables considered a source of short-term finance?

How does trade credit function in practice as short-term financing?

What are the two ways receivables can be used as a source of short-term finance?

What are the three services typically provided by a factoring company?

What are the benefits of factoring for a business?

What is invoice discounting and how does it differ from factoring?

Why might new businesses prefer invoice discounting over factoring?

What is a financial institution and what services does it provide?

What short-term finance options do financial institutions offer?

What are the two main types of short-term borrowing from banks?

What are the advantages and disadvantages of bank overdrafts?

What is a bank loan and how does it differ from an overdraft?

What are some methods of financing exports and managing export credit risk?

What is a documentary credit (irrevocable letter of credit) and what problem does it solve?

What is a bill of exchange and when is it used?

What are the two types of bills of exchange?

What is meant by discounting a bill of exchange?

What are the key features of bills of exchange?

What is export factoring and how does it work?

What is forfaiting and how does it differ from export factoring?

What are key features of forfaiting?

Why do businesses make short-term investments?

What are examples of short-term investment options for surplus cash?

What criteria should a business consider for short-term investments?

What should a business consider before investing surplus cash?

What is maturity in the context of short-term investments and why is it important?

What does return refer to in short-term investing?

What risks are associated with short-term investments?

Why are equities generally unsuitable for short-term investments?

What is liquidity and why does it matter for short-term investments?

Why is diversification important in short-term investments?

What are the two main categories of interest-bearing accounts?

What are the features of instant access bank deposit accounts?

What limitations might apply to savings accounts that allow early withdrawal?

What are money market deposits?

Why is timing important for money market deposits?

How is interest earned on a deposit or savings account calculated?

What are the day count conventions for interest calculations?

What is a negotiable instrument?

Give examples of negotiable instruments used for short-term investment.

What is a Certificate of Deposit (CD)?

What options does an investor have with a CD before maturity?

Why are CDs considered more attractive than money market deposits?

What makes bills of exchange attractive short-term investments?

How are bills of exchange typically purchased and why?

What determines the yield on a bill of exchange?

What are Treasury bills and why are they popular short-term investments?

How are Treasury bills priced and redeemed?

What are the benefits of investing in short-dated government bonds?

How do market interest rates affect bond prices?

What are examples of other short-term investments besides those already discussed?

Why are corporate bonds generally unsuitable for short-term cash surplus investments?

What is commercial paper (CP)?

Why is commercial paper not usually suitable for short-term investments by trading entities?