CFA Practice Question

There are 120 practice questions for this study session.

CFA Practice Question

A firm that employs a restrictive short-term financial policy will have a relatively ______.
A. low amount of short-term debt and a high ratio of current assets to sales
B. high amount of marketable securities
C. high amount of short-term debt relative to long-term debt
Explanation: A firm will tend to have a higher amount of short-term debt and a relatively low amount of current assets to sales under a restrictive policy. With a restrictive policy, a firm is less likely to have excess cash that must be invested in marketable securities.

User Contributed Comments 11

User Comment
ManuB What is a restrictive short term debt policy?
sheenalim and why does it have lower amt of assets relative to sales?
migena i think, the company is maintaining a strict policy of paying off short term debt before it can do anything else, i.e. spend in marketable securities or any other short term/current assets
hlongoni complementing migena - i believe the answer is due to the reason behind why the company is in a restrictive ST financial policy: probably for having large amounts of ST debt so that liquidate it became a priority
mpapwa22 Hlongoni...still don't get it..i had selected A. Maybe explain further.
bahamas it means the firm is restricting its debt policy to be strictly short term, so they will have more short term than long term
MinS thakns bahamas
Thecatz tricky like all questions of analystnotes... shot me please...
czar restrictive st policy means: restrict to keeping minimum cash on the books, so finance with short term debt instead of using cash...
Mikehuynh Such a tricky question! I interpreted "restrictive" wrongly, then went for B. Anyway, good question!

Restrictive short-term financial policy = using more short-term debt, maintaining minimum cash.
fberlinger A restrictive short-term financial policy means a high proportion of short-term debt relative to long-term financing, and a flexible policy means less short-term debt and more long-term debt.
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