DALEY dec 18 part a)

A bank may allow a client to "go into 'the red'" (meaning into an overdraft position) or exceed a current overdraft facility without prior agreement - rather than "bounce" payments - but with punitive charges (i.e. with extremely high charges acting as a deterrent).

Yes to your first paragraph. The strategic professional level exams assumes some knowledge of the workings of "finance" - if not from practical experience, then from FM(F9). If you've never had an overdraft - perhaps you have a credit card? The credit card company gives you a credit limit. It doesn't cost you anything to use a credit card if you pay the balance owed, in full, at the end of the month - you only pay interest - perhaps at 24% APR (!!!) - to the extent that you use the credit limit. Unlike a bank overdraft, it is not possible to exceed the credit limit (because any payment that would take you over the limit will be "declined" at the point of sale). If a company takes out a $100,000 loan - that is a fixed amount - and it will pay interest every day on the loan amount. An overdraft is a FACILITY - interest is only paid to the extent that it is used. You should remember from FM that if a company's use of an overdraft is "of a permanent nature" then you are quite right - it should be re-negotiated as a loan.