CA Intermediate · Financial Management and Strategic Management · Financing of Working Capital
Which of the following is a spontaneous source of short-term working capital finance for a manufacturing firm?
Trade credit from suppliers is the spontaneous source, because it arises automatically in the normal course of buying goods on credit and expands with business activity. Bank cash credit, commercial paper and public deposits need negotiation, sanction or a formal issue, so they are not spontaneous.
- ATrade credit extended by suppliersCorrect
- BCash credit limit sanctioned by a bank
- CCommercial paper issued to mutual funds
- DPublic deposits accepted from the public
Explanation
Trade credit arises automatically from the purchase of goods on credit and grows with the scale of operations, so it is spontaneous. Cash credit, commercial paper and public deposits all require negotiation, sanction or a deliberate issue, so they are not spontaneous.
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