Firms generally choose to finance temporary current operating assets with short-term debt because
A) matching the maturities of assets and liabilities reduces risk under some circumstances, and also because short-term debt is often less expensive than long-term capital.
B) short-term interest rates have traditionally been more stable than long-term interest rates.
C) a firm that borrows heavily on a long-term basis is more apt to be unable to repay the debt than a firm that borrows short term.
D) the yield curve is normally downward sloping.

Question

Quizplus · Accepted Answer

Firms generally choose to finance temporary current operating assets with short-term debt because there is a benefit in matching the maturities of assets and liabilities which reduces risk under some circumstances. Additionally, short-term debt is often less expensive than long-term capital.

Firms Generally Choose to Finance Temporary Current Operating Assets with Short-Term