1. ©2012 McGraw-Hill Ryerson Limited 1 of 23 Learning Objectives 3.Describe commercial paper as a short-term, unsecured promissory note of the firm. (LO3) 4.Review borrowing in foreign markets as cost- effective alternative for the firm. (LO4) 5.Explain that offering accounts receivable and inventory as collateral may lower the interest costs on a loan. (LO5) 6.Demonstrate the hedging of interest rates to reduce borrowing risk. (LO6)

2. ©2012 McGraw-Hill Ryerson Limited 2 of 23 Accounts Receivable Financing A/R financing includes 3 choices: 1.Pledging accounts receivable as collateral for a loan 2.An outright sale (factoring) of receivables to a factoring company 3.Asset-backed Securities: sale of receivables by large corporations in public offerings Tends to be a relatively expensive source of financing LO5

3. ©2012 McGraw-Hill Ryerson Limited 3 of 23 Inventory Financing Inventory may be assigned as collateral security against an operating loan For example, in a Trust Receipt or Floor Planning –loan is based upon serial numbers on product –when goods are sold, loan is repaid –used by auto dealers, industrial equipment dealers, television and home appliance dealers LO5