CFA Practice Question

There are 120 practice questions for this study session.

CFA Practice Question

There is a saying in banking: when a business is experiencing financial problems, trade creditors are the first to know. Why would this be true?

A. Trade creditors typically extend businesses credit more often and for a shorter maturity than do other creditors (such as banks).
B. Trade creditors perform credit checks less often than banks do.
C. Trade creditors get all of their information about credit risks from banks.
D. Trade creditors can always take back the merchandise they sold the borrower if they don't get paid.
E. Trade creditors extend credit only to the most creditworthy businesses while banks extend short-term loans to almost any borrower.
Correct Answer: A

B. Most trade creditors extend credit to customers more frequently than a bank does, so they must continually monitor their customers' creditworthiness.
C. Trade creditors rely on other information as well.
D. Suppose the customer has sold or otherwise altered the goods acquired?
E. Trade creditors will likely extend credit to a wider array of customers than banks will.

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