Which of the following about bank bill financing facility is NOT correct?

Question

BlackTom AI · Accepted Answer

The question asks which statement about a bank bill financing facility is not correct, so we will evaluate each option for accuracy.
Option 1: 'A bill rollover facility is an arrangement whereby the bank agrees to accept and discount new commercial bills for an issuer at each maturity date.' This describes the fundamental concept of a rollover facility, where the bank continues to accept and discount new bills as previous ones mature. It reflects the renewing nature of the facility, so this statement is typically correct.
Option 2: 'Bills issued via a rollover facility incorporate the higher credit standing of the bank acceptor.' In such arrangements, the bank often provides its acceptance or guarantees, effectively transferring some of the bank’s strong credit quality to the issuer’s bills. This improves the perceived creditworthiness of the bills, so this statement is correct.
Option 3: 'The yield at which the bill is discounted depends partly on the credit rating of the party that incurs the liability.' Discount yield is indeed influenced by credit risk: a higher risk borrower generally faces a higher discount rate. This statement is correct.
Option 4: 'The bank agrees to discount bills up to the agreed amounts with a fixed yield over the life of the rollover facility.' Here the key issue is the claim of a fixed yield over the life of the facility. In practice, the discount yield is typically tied to prevailing market rates, the credit risk of the issuer, and can vary over time; it is not usually fixed for the entire life of the facility. Therefore, this statement is not correct.
Overall, the incorrect statement is the one asserting a fixed yield for the life of the facility, while the other options align with standard features of bank bill financing and rollover facilities.

25741 Capital Markets - Autumn 2025 Quiz 5 - GRADED

Which of the following about bank bill financing facility is NOT correct?

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