1. Why is credit risk analysis an important component of FI risk management? What recent activities by FIs have made the task of credit risk assessment more difficult for both FI managers and regulators?

2. Differentiate between a secured loan and an unsecured loan. Who bears most of the risk in a fixed-rate loan? Why would FI managers prefer to charge floating rates, especially for longer-maturity loans?

3. How does a spot loan differ from a loan commitment? What are the advantages and disadvantages of borrowing through a loan commitment?

4. Why is commercial lending declining in importance in the United States? What effect does this decline have on overall commercial lending activities?

5. What are the primary characteristics of residential mortgage loans? Why does the ratio of adjustable-rate mortgages to fixed-rate mortgages in the economy vary over an interest rate cycle? When would the ratio be highest?