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How is the effective annual rate on such a note found

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Unformatted text preview: er between a loan requiring interest payments at maturity and another, similar loan requiring interest in advance? What are the basic terms and characteristics of a single-payment note? How is the effective annual rate on such a note found? What is a line of credit? Describe each of the following features that are often included in these agreements: (a) operating-change restrictions; (b) compensating balance; and (c) annual cleanup. 650 PART 5 Short-Term Financial Decisions 15–8 What is a revolving credit agreement? How does this arrangement differ from the line-of-credit agreement? What is a commitment fee? 15–9 How is commercial paper used to raise short-term funds? Who can issue commercial paper? Who buys commercial paper? 15–10 What is the important difference between international and domestic transactions? How is a letter of credit used in financing international trade transactions? How is “netting” used in transactions between subsidiaries? LG5 LG6 15.3 Secured Sources of Short-Term Loans secured short-term financing Short-term financing (loan) that has specific assets pledged as collateral. security agreement The agreement between the borrower and the lender that specifies the collateral held against a secured loan. When a firm has exhausted its sources of unsecured short-term financing, it may be able to obtain additional short-term loans on a secured basis. Secured shortterm financing has specific assets pledged as collateral. The collateral commonly takes the form of an asset, such as accounts receivable or inventory. The lender obtains a security interest in the collateral through the execution of a security agreement with the borrower that specifies the collateral held against the loan. In addition, the terms of the loan against which the security is held form part of the security agreement. They specify the conditions required for the security interest to be removed, along with the interest rate on the loan, repayment dates, and other loan provisions. A copy of the security agreement is filed in a public offi...
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