CA Intermediate · Financial Management and Strategic Management · Management of Payables (Creditors)
Which of the following is a recognised source of spontaneous financing that arises from the normal course of business operations without any formal negotiation?
Trade credit is a spontaneous source of finance because it arises automatically from buying goods on credit in the ordinary course of business and varies with purchase volumes. Commercial paper, overdrafts and term loans need formal arrangements or sanctions.
- ATrade creditCorrect
- BCommercial paper
- CBank overdraft
- DTerm loan
Explanation
Trade credit arises automatically when goods are bought on credit and grows with purchase volume, so it is spontaneous. Commercial paper, bank overdraft and term loans require formal issuance or sanction.
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