United Financial Corporation is a large, wellknown company. Its financial managers project that United Financial will require shortterm financing in the near future. They believe that borrowing shortterm loans from banks is not a good option as interest rates on these loans are undesirably high. The financing option that the financial managers are most likely to consider is to:
A) establish a line of credit arrangement with their banker.
B) sell some corporate bonds.
C) opt for commercial paper.
D) establish a revolving credit arrangement with their banker.

Question

United Financial Corporation is a large, well­known company. Its financial managers project that United Financial will require short­term financing in the near future. They believe that borrowing short­term loans from banks is not a good option as interest rates on these loans are undesirably high. The financing option that the financial managers are most likely to consider is to:
A) establish a line of credit arrangement with their banker.
B) sell some corporate bonds.
C) opt for commercial paper.
D) establish a revolving credit arrangement with their banker.

Quizplus · Accepted Answer

Opting for commercial paper is the best choice for United Financial Corporation as it is a type of short-term, unsecured promissory note that is issued by large corporations with high credit ratings. The interest rates on commercial paper are typically lower than short-term loans from banks, making it a more cost-effective financing option. Establishing a line of credit or revolving credit arrangement with a banker may also be viable options, but they may not provide the cost savings that commercial paper can offer. Selling corporate bonds is not a short-term financing option and may not be the best solution for United Financial's immediate needs.

United Financial Corporation Is a Large, Well­known Company

United Financial Corporation Is a Large, Wellknown Company