A Committed Line of Credit

question 99

Multiple Choice

A committed line of credit:

• A)guarantees that a set amount of funds will be available to a firm for a stated period of time regardless of events that might occur during that time period.
• B)is a guarantee that a bank will purchase a firm's accounts receivable at full value.
• C)provides greater assurance than a noncommitted credit line that funds will be available when needed by a firm.
• D)guarantees that any funds borrowed during a stated period of time will be charged the lowest rate of interest the lending bank offers to any of its customers.
• E)is a loan arrangement for a stated period of time which is free of all costs and fees other than the actual interest paid on the funds borrowed.

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Definitions:

Required Reserves

The minimum amount of reserves a bank is mandated to hold by central banking authorities, often a percentage of the bank's deposit liabilities.

Treasury Bill

A short-term government security issued at a discount from the face value and returning the face amount upon maturity, commonly used as a safe and liquid investment.

Reserve Requirement

The minimum amount of reserves that banks must hold against deposits, set by central banks to control the money supply.

T-Account

A T-account is a visual representation of a ledger account, used in accounting to show the effects of transactions on an account balance.