{"id":30191,"date":"2021-09-14T00:59:34","date_gmt":"2021-09-14T00:59:34","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=30191"},"modified":"2021-10-22T13:48:48","modified_gmt":"2021-10-22T13:48:48","slug":"short-term-funding","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/short-term-funding\/","title":{"rendered":"Short-term Funding"},"content":{"rendered":"\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/9XarNMLDyXM\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p><span data-preserver-spaces=\"true\">The objectives of a short-term borrowing strategy include:<\/span><\/p>\n<ul>\n<li>Ensuring there is the capacity to handle sudden cash needs;<\/li>\n<li>Maintaining sufficient credit sources to fund cash needs; and<\/li>\n<li>Ensuring the interest rates obtained are cost-effective.<\/li>\n<\/ul>\n<p>Several factors will influence a company&#8217;s short-term borrowing strategies:<\/p>\n<ul>\n<li><strong>Size and creditworthiness: <\/strong><span data-preserver-spaces=\"true\">A company&#8217;s size influences the options it has at its disposal. A large company can access commercial paper and banker&#8217;s acceptance. The borrowers&#8217; creditworthiness will determine the interest rate it will pay and\/or whether collateral will be required.&nbsp;&nbsp;<\/span><\/li>\n<li><strong>Legal and regulatory considerations: <\/strong><span data-preserver-spaces=\"true\">There may be regulatory restrictions on the amount a company can borrow.<\/span><\/li>\n<li><strong>Sufficient access: <\/strong><span data-preserver-spaces=\"true\">Borrowers can have a pool of sources from which they can access their funding and not rely heavily on a single financier.&nbsp;<\/span><\/li>\n<li><strong><span data-preserver-spaces=\"true\">The flexibility of borrowing options: <\/span><\/strong><span data-preserver-spaces=\"true\">This ensures that there are no days where significant debt matures, leading to large cash outlays. Additionally, the ability to make prepayments whenever possible without any penalties should be considered.<\/span><\/li>\n<\/ul>\n<blockquote>\n<h3>Question<\/h3>\n<p><span data-preserver-spaces=\"true\">Which of the following factors will&nbsp;<\/span><em><span data-preserver-spaces=\"true\">least likely&nbsp;<\/span><\/em><span data-preserver-spaces=\"true\">influence a company\u2019s short-term borrowing strategies?<\/span><\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li><span data-preserver-spaces=\"true\">Size and creditworthiness.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Legal and regulatory considerations.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Capacity to handle cash sudden needs.<\/span><\/li>\n<\/ol>\n<p><strong><span data-preserver-spaces=\"true\">Solution<\/span><\/strong><\/p>\n<p>The correct answer is<strong><span data-preserver-spaces=\"true\"> C<\/span><\/strong>.<\/p>\n<p><span data-preserver-spaces=\"true\">Ensuring there is the capacity to handle sudden cash needs is an objective of a short-term borrowing strategy.<\/span><\/p>\n<p><strong><span data-preserver-spaces=\"true\">A is incorrect. <\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;Size and creditworthiness is a factor influencing a company\u2019s short-term borrowing strategy. A company\u2019s size influences the options at its disposal, while its creditworthiness will influence the interest rate it will pay.<\/span><\/p>\n<p><strong><span data-preserver-spaces=\"true\">B is incorrect. <\/span><\/strong><span data-preserver-spaces=\"true\">Legal and regulatory considerations influence a company\u2019s short-term borrowing strategy as there may be regulatory restrictions on the amount a company can borrow.<\/span><\/p>\n<\/blockquote>\n<div class=\"blog-detail-left\">\n<div class=\"blog-content-wrap\">\n<div class=\"notes_inv\"><hr><\/div>\n<\/div>\n<div class=\"my-4 d-flex w-100 content_sharer\">&nbsp;<\/div>\n<div class=\"sticky-stopper\">&nbsp;<\/div>\n<\/div>\n<div class=\"blog-sidebar-wrap\">\n<div class=\"blog-sidebar-inner\">&nbsp;<\/div>\n<\/div>\n<p><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[25],"tags":[],"class_list":["post-30191","post","type-post","status-publish","format-standard","hentry","category-corporate-issuers","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - 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