When a company discounts an interest-bearing note at a bank with recourse:
A) The company is assured payment at maturity.
B) The company will receive the full amount of the note plus interest.
C) The company has a contingent liability from the time the note is discounted until its maturity date.
D) The bank assumes the credit risk on non-payment at the maturity date.

Question

Quizplus · Accepted Answer

When a company discounts an interest-bearing note at a bank with recourse, it means that the company is selling the note to the bank at a discounted value before its maturity date. However, if the borrower defaults on their payment obligation, the bank can go back to the company for repayment. This means that the company has a contingent liability from the time the note is discounted until its maturity date.

When a Company Discounts an Interest-Bearing Note at a Bank