Question

A firm negotiates a(n) _________ with its bank. This arrangement gives the firm access to a specified amount of unsecured short-term funds, provided the bank has the funds available.

Answer 1

Answer:

Line of credit

Explanation:

A line of credit refers to a mechanism of availing short term credit from banks whereby a borrower is provided with a preset limit till which funds can be availed anytime.

As the borrower repays the money borrowed, the line of credit gets restored to the previous level provided it is an open line of credit.

Line of credit specifies the maximum limit till which money can be borrowed. The rate of interest and repayment time period are decided by the lender which is usually a bank.

Borrower is usually supposed to pay interest upon the money actually borrowed and not the full limit of the line of credit.