1. The liquidity premium theory suggests that long-term interest rates are higher than short-term interest rates because:

A) investors generally prefer to invest short periods of time
B) government policy maintains this relationship
C) there is greater risk in long-term bonds
D) exchange rate fluctuations establish this relationship



2. Using a lockbox system to improve collections:

A) is more expensive than the use of collection centers
B) utilizes local banks to clear local payments made to the collection center
C) provides more float than collection centers
D) results in checks being forward to a P.O. box and clearing through local banks



3. All of the following are factors influencing the choice of marketable securities except:

A) yield
B) maturity
C) marketability
D) maximum investment allowed



4. A cash discount may best be defined as:

A) a reduction in price if payment is made within the specified time period
B) a discount offered to critical suppliers
C) a discount applied to volume sales
D) a discount or the repayment of the firm's debt



5. Commercial paper may best be defined as:

A) a short term obligation of the government issued to commercial investors
B) short term unsecured promissory notes issued by corporations
C) an insignificant source of funds to large corporations
D) the debt obligations of chartered banks