CA Intermediate · Financial Management and Strategic Management · Financing of Working Capital
Which of the following is a source of spontaneous short-term financing for working capital, arising automatically from the normal course of business operations without any negotiation with a lender?
Trade credit from suppliers is the spontaneous source of working capital finance. It arises automatically whenever goods are bought on credit and moves with the level of purchases, whereas bank cash credit, commercial paper and public deposits require formal arrangements or issuance.
- ATrade credit extended by suppliersCorrect
- BCash credit facility from a bank
- CCommercial paper issued by a company
- DPublic deposits accepted by a company
Explanation
Trade credit arises automatically when a firm buys goods on credit and grows with purchases. Cash credit, commercial paper and public deposits all need a formal arrangement, negotiation or issue, so they are not spontaneous.
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