The Risk to the Firm of Borrowing Using Short-Term Credit

question 16

True/False

The risk to the firm of borrowing using short-term credit is usually greater than if it used long-term debt.Added risk stems from greater variability of interest costs on short-term debt.Even if its long-term prospects are good,the firm's lender may not renew a short-term loan if the firm is even temporarily unable to repay it.

---

Definitions:

Foreign Exchange

The exchange of one currency for another, or the conversion of one currency into another currency.

Trade Deficits

A situation in which a country's imports exceed its exports during a given time period.

Saving Rate

The proportion of disposable income that individuals or households save rather than spend on consumption.

U.S. Economy

The economic system of the United States, characterized by a mixed economy that includes private enterprise alongside limited government involvement.