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How do short term bank notes provide what amount to permanent financing at short term rates?
Wiki User
∙ 12y ago
Amore obvious source of short-term financing is the short-term (usually 90-day)
bank note. A short-term loan from a commercial bank carries an interest rate and is
payable in full, principal plus interest, on the specified maturity date. Rolling over
the debt consists of paying the interest and borrowing enough to repay the principal
at the end of the loan period. Doing so provides, in effect, permanent financing
at short-term rates (usually less than long-term rates). On the other hand, rolling
over short-term debt exposes the borrower to the risk that interest rates will rise
during the 90-day life of the loan. Borrowing at a new, higher rate may not seem the
bargain that was anticipated at the beginning of the loan program.
Wiki User
∙ 12y ago
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