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Unformatted text preview: er between a loan requiring interest payments at maturity and another, similar loan requiring interest in
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
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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