Matching principle of working capital financing
What is the matching principle of working capital financing and also explain the benefits of following this principle.
Expert
The matching principle is when short-term financing is used for temporary current assets while long-term financing is used for permanent current assets and fixed assets. The main benefit of this approach is that as temporary current assets are sold off the proceeds can be used to pay off the short-term debt.
Good fellow national bank decided to compete with a savings and loan by offering 30 year fixed rate mortgage loans at 8% annual interest. It plans to obtain the money got the loans by selling one year 6% CD to it's depositors. During first year of operation, good fellows sold it's depositors 1,000,0
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