Which of the following statements about maturity matching strategy is true?
A) All seasonal working capital needs are funded with short-term borrowing.
B) As the level of sales varies seasonally, short-term borrowing fluctuates with the level of seasonal working capital.
C) All fixed assets are funded with long-term financing.
D) All of the above

Question

Quizplus · Accepted Answer

The maturity matching strategy, also known as the matching principle, suggests that the duration of assets should match the duration of the financing. Therefore, seasonal working capital needs (which are short-term) are funded with short-term borrowing, and fixed assets (which are long-term) are funded with long-term financing. This approach also implies that as the level of sales and thus the working capital needs fluctuate seasonally, the amount of short-term borrowing will adjust accordingly.

Which of the Following Statements About Maturity Matching Strategy Is