2. Credit analysis refers to

A the assessment of company of borrower or the project risk associated with a loan approval.

B the assessment of credit worthiness of the borrower or the credit risk associated with a loan approval.

C the assessment of loan proposal and application form.

D the assessment of the borrower or the individual loan policy associated with a loan approval.

3. Debt covenants refer to *

1 point

A background of the borrower.

B collateral provided by the borrower to secure the loan.

C terms and conditions laid out in loan contracts.

D capacity of repayment by the borrower.

4. The advantages of financial statements analysis include the following except: *

1 point

A They provide complete picture of financial position of the business, which helps lenders to take a lending decision.

B It is possible to analyse trends in financial position and thus to know whether the business is showing improvement in its financial position.

C An expert analyst can unearth valuable information hidden under the figures in financial statements.

D Statements are about historical performance of the firm while lender is more interested in future performance

5. The disadvantages of implementing credit scoring within a financial institution include the following except: *

1 point

A The potential for inappropriate analysis and decision-making.

B A measurable rejection method.

C Potential alienation of the targeted client group.

D High turnover of staff based on lower job satisfaction.

6. Efficiency ratios measure: *

1 point

A The potential for analysis and decision-making.

B A measurable rejection method.

C How efficiently the business employed its assets.

D Sales turnover and stock.

7. Leverage ratios are used to: *

1 point

A Determine the amount capital.

B Assess the risk arising from the use of debt capital.

C Determine amount of debts.

D Assess the amount of loan.

8. What is break-even point? *

1 point

A Break-even analysis involves the calculation of profit over costs.

B Break-even analysis involves calculation of the break-even point and the margin of safety.

C Break-even analysis involves the calculation of profit over sales.

D Break-even analysis involves the calculation of profit over the margin of safety.

9. Credit risk refers to *

1 point

A The risk that the principal and interest payable on a loan will not be paid in a timely manner.

B The risk that the principal a loan will not be paid in a timely manner.

C The risk that the principal owner of the loan cannot recover the loan.

D The risk that the principal and interest payable on a loan cause losses to the bank.

10. Finance refers to *

1 point

A Money in the bank.

B Money changing hand.

C Money in hand.

D Cash and profit in bank account.

11. Character refers to *

1 point

A Can the assets supporting the loan be sold at a fair price in the event of default

B Can the assets supporting the loan be sold at a fair price in the event of default

C Does the borrower have the capacity to enter into loan (e.g. minor)?

D Is the borrower the type of person who would direct efforts to repayment or avoiding obligations?

12. Capacity refers to *

1 point

A Can the assets supporting the loan be sold at a fair price in the event of default

B Can the assets supporting the loan be sold at a fair price in the event of default

C Does the borrower have the legal ability to enter into loan (e.g. minor)?

D Is the borrower the type of person who would direct efforts to repayment or avoiding obligations?

13. Conditions refers to *

1 point

A Can the assets supporting the loan be sold at a fair price in the event of default

B Where are we in the economic cycle?

C Does the borrower have the legal ability to enter into loan (e.g. minor)?

D Is the borrower the type of person who would direct efforts to repayment or avoiding obligations?

14. Collateral refers to *

1 point

A Can the assets supporting the loan be sold at a fair price in the event of default

B Where are we in the economic cycle?

C Does the borrower have the legal ability to enter into loan (e.g. minor)?

D Is the borrower the type of person who would direct efforts to repayment or avoiding obligations?

15. A loan is a fixed sum of money advanced by a bank as one lump sum payment. An overdraft is like a running account subject to a limit. *

1 point

A True

B False

16. Credit culture refers to institutional priorities, traditions and philosophies that surround credit or lending decisions. *

1 point

A True

B False

17. Current liabilities include borrowings for the short term, trade creditors, accrued expenses ,prepared expenses and provisions. *

1 point

A True

B False

18. Leverage ratios help us in assessing the risk arising from the use of debt capital. *

1 point

A True

B False

19. Financial statements analysis ignores qualitative aspects. *

1 point

A True

B False

20. Discounted cash flow involves a process of discounting the cash flows using a discount rate so as to arrive at their past value. *

1 point

A True

B False

21. When financial statements are made up and dont give a true and fair view, such an accounting is called creative accounting. *

1 point

A True

B False

22. Credit scoring is a mathematically-based tool that ranks the probability of an unknown outcome, e.g. a loan is paid or defaulted upon; this is done by allocating a points system to known variables. *

1 point

A True

B False

23. Implementation of a full credit scoring system across a financial institution will add value because it will allow for the probability of default to be built into the pricing of the loan. *

1 point

A True

B False

24. Expert systems are procedures for analysing loan proposals that are largely based on the skill of the credit analyst. They are normally do not applied using acronyms such as the 5 Cs or PARSER. *

1 point

A True

B False

25. Discriminant analysis seeks to distinguish between three populations using a set number of characteristics. *

1 point

A True

B False

26. Consumer lending or credit refers to the loans required by individuals or households to meet personal needs such as travel or the purchase of furniture, household appliances, motor vehicles, boats or homes. *

1 point

A True

B False

27. The basis of market-based premiums is that the probability of repayment or default risk of a loan can be determined from the term structure of credit risk. *

1 point

A True

B False

28. Consumer loan include personal loan to buy furniture, home appliances, car and boats. *

1 point

A True

B False

29. Ratio analysis is an arithmetical relationship between two figures. *

1 point

A True

B False

30. The quick ratio is also called the acid test ration. *

1 point

A True

B False