Finance · Working Capital Financing
A mid-sized manufacturing firm, which operates in a highly seasonal industry, approaches a commercial bank for a Working Capital Advance. The bank decides to assess the firm's financing needs using the Cash Budget Method of Lending instead of the traditional MPBF (Maximum Permissible Bank Finance) approach. Which of the following statements about this situation is MOST accurate?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
Share:
- 1The method is used only for firms with a negative Working Capital Cycle and a current ratio above 1.5:1, indicating exceptionally high liquidity.
- 2The Cash Budget Method is preferred for highly seasonal industries as it maps the firm's exact monthly cash deficit, allowing the bank to sanction a variable limit that directly correlates with the firm's Working Capital Cycle.✓
- 3The bank is using the recommended method for all large bank borrowers as per the latest RBI guidelines, completely replacing the Tandon/Chore committee norms.
- 4The Cash Budget Method is primarily used for firms with minimal seasonality, providing a more conservative assessment of the annual average deficit than the MPBF method.
Correct answer
The Cash Budget Method is preferred for highly seasonal industries as it maps the firm's exact monthly cash deficit, allowing the bank to sanction a variable limit that directly correlates with the firm's Working Capital Cycle.
Download Single Question PDF
Save this question and verified answer as a clean study sheet with live clickable link.
👥
Share with Friends & Study Groups
Challenge your peer aspirants on WhatsApp or Telegram to solve this question!
Online Test Series
Start Free Mock Test →Preparing for Finance?
Practice full-length mock tests with real exam timers, instant score analysis, and all-India ranking.
Chapter Practice
Practice Working Capital Financing MCQs →Want more practice questions on Working Capital Financing?
Solve complete topic-wise tests with detailed solutions on GkGet.
Related Practice Questions
Recommended practice questions in Finance · Working Capital Financing