Risk exposure due to heavy short-term borrowing can be compensated for by
A) carrying highly liquid assets.
B) carrying many illiquid assets.
C) carrying longer term, more profitable current assets.
D) carrying more receivables to increase cash flow.

Question

Quizplus · Accepted Answer

Carrying highly liquid assets can help offset the risk exposure of heavy short-term borrowing, as these assets can be sold quickly to raise funds in the event of a cash shortfall. This provides a buffer against the risk of default. Carrying many illiquid assets can actually increase risk exposure, as these assets may be difficult to sell quickly if funds are needed urgently. Increasing receivables to increase cash flow may also increase risk exposure if customers are unable to pay their debts. Carrying longer term, more profitable current assets may help to increase overall profitability, but will not necessarily offset the risk exposure of heavy short-term borrowing.

Risk Exposure Due to Heavy Short-Term Borrowing Can Be Compensated