A construction firm cannot obtain the necessary permits to begin building a shopping mall until it can show it either has or will have the necessary funding to complete the project. The firm may ask a bank for which of the following to allow it to obtain the permits?
I. Commercial letter of credit
II. Loan commitment
III. Credit line
IV. Repurchase agreement

Question

Quizplus · Accepted Answer

A commercial letter of credit (I) is not typically used to demonstrate funding for a construction project. A loan commitment (II) is a promise from a bank to provide a loan at a future date and would demonstrate the necessary funding for the construction project. A credit line (III) is a revolving line of credit that allows a borrower to borrow funds as needed, which could also demonstrate the necessary funding for the construction project. A repurchase agreement (IV) is a transaction where the bank temporarily sells securities to the borrower with an agreement to repurchase them at a later date and would not demonstrate the necessary funding for the construction project. Therefore, the best choices to allow the construction firm to obtain the necessary permits are II or III.

A Construction Firm Cannot Obtain the Necessary Permits to Begin