1.

A compensating balance
a. Earns interest at the same rate as a saving deposit
b. Can be held in the form of a bankers acceptance
c. Increases the effective rate of return on savings account
d. Maybe required in lieu of a fee for bank services

2. If the average age of inventory is 60 days, the average age of accounting receivable is 40 days,
the average are of account receivable is 35 days, the length of the cash flow cycle is:
a. 100 days
b. 135 days
c. 55 days
d. 65 days

3. A firm has daily cash receipt of 100,000. A bank has offered to reduce the collection time on the
firms deposits by 2 days for a monthly fee of P500. if money market rates are expected to
average 6% during the year, the net annual benefits (loss) from having this service is:
a. 3000
b. 12,000
c. 0
d. 6,000