Strategies aggressive funding strategy a funding

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Unformatted text preview: 04 PART 5 Short-Term Financial Decisions Aggressive versus Conservative Seasonal Funding Strategies aggressive funding strategy A funding strategy under which the firm funds its seasonal requirements with short-term debt and its permanent requirements with long-term debt. conservative funding strategy A funding strategy under which the firm funds both its seasonal and its permanent requirements with long-term debt. EXAMPLE Short-term funds are typically less expensive than long-term funds. (The yield curve is typically upward-sloping.) However, long-term funds allow the firm to lock in its cost of funds over a period of time and thus avoid the risk of increases in short-term interest rates. Also, long-term funding ensures that the required funds are available to the firm when needed. Short-term funding exposes the firm to the risk that it may not be able to obtain the funds needed to cover its seasonal peaks. Under an aggressive funding strategy, the firm funds its seasonal requirements with short-term debt and its permanent requirements with long-term debt. Under a conservative funding strategy...
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This document was uploaded on 01/19/2014.

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