The maturity matching, or "self-liquidating", approach to financing involves obtaining the funds for permanent current assets with a combination of long-term capital and short-term capital that varies depending on the level of interest rates. When short-term rates are relatively high, short-term assets will be financed with long-term debt to reduce costs. a. True b. False

Question

Business

Lilyana Glover

14 May, 03:31

The maturity matching, or "self-liquidating", approach to financing involves obtaining the funds for permanent current assets with a combination of long-term capital and short-term capital that varies depending on the level of interest rates. When short-term rates are relatively high, short-term assets will be financed with long-term debt to reduce costs. a. True b. False

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Cory Bowman · Answer 1

False

Explanation:

When a company uses a maturity matching approach, it must match its short term working capital with its short term debts, and its long term working capital with its long term debts. Every asset should be compensated with a corresponding debt instrument of similar maturity.