Title chapter 10.pdf ✅

StuDocu is not sponsored or endorsed by any college or university Credit Risk 1 Testbank Bank Financial Management (University of New South Wales) Downloaded by Hoan My Phan ([email protected]) lOMoARcPSD|7582879
Chapter 10 - Testbank Student: ___________________________________________________________________________ 1. A loan provided by a group of FIs as opposed to a single lender is called: A. a joint loan. B. project finance. C. a syndicated loan. D. a multiple loan. 2. The term 'loan rating' refers to the process of individual loans being given credit rating by: A. rating agencies dependent on the lender's credit assessment. B. rating agencies dependent on the lender's credit assessment. C. lenders dependent on a credit rating agency's credit assessment. D. lenders independent of a credit rating agency's credit assessment. 3. The term 'asset-backed loan' refers to a loan that is backed by a: A. first claim on certain assets of the borrower if default occurs. B. second claim on certain assets of the borrower at maturity. C. first claim on certain assets of the borrower at maturity. D. None of the listed options are correct. 4. An unsecured loan is also referred to as: A. non-asset backed loan. B. mezzanine debt. C. junior debt. D. senior debt. 5. The term 'spot loan' refers a loan: A. that is granted on the spot. B. that needs to be repaid on the spot. C. granted at the spot rate. D. for which the full loan amount is withdrawn by the borrower on the spot. 6. Which of the following statements is true? A. A line of credit facility is a credit facility with a maximum size and a minimum period of time over which the borrower can withdraw funds. B. A line of credit facility is a credit facility with a minimum size and a minimum period of time over which the borrower can withdraw funds. C. A line of credit facility is a credit facility with a maximum size and a maximum period of time over which the borrower can withdraw funds. D. A line of credit facility is a credit facility with a minimum size and a maximum period of time over which the borrower can withdraw funds. Downloaded by Hoan My Phan ([email protected]) lOMoARcPSD|7582879
7. Which of the following statements is true? A. A commercial paper is an unsecured long-term debt instrument issued by corporations. B. A commercial paper is a secured long-term debt instrument issued by corporations. C. A commercial paper is a secured short-term debt instrument issued by corporations. D. A commercial paper is an unsecured short-term debt instrument issued by corporations. 8. The term disintermediation refers to the process in which firms access: A. money markets directly. B. money markets via financial intermediaries. C. capital markets directly. D. capital markets via financial intermediaries. 9. A credit line on which a borrower can both draw and repay many times over the life of the loan contract is called a: A. reviving loan. B. revolving loan. C. refilling loan. D. A credit line does not exist. 10. The prime lending rate is the: A. risk premium periodically set by the RBA. B. base lending rate periodically set by banks. C. base lending rate periodically set by the RBA. D. risk premium periodically set by banks. 11. Which of the following statements is false? A. Default risk is the risk that the borrower is willing but unable to fulfil the terms promised under loan contract. B. Default risk is the risk that the borrower refinances the loan before maturity. C. Default risk is the risk that the borrower is able but unwilling to fulfil the terms promised under loan contract. D. Default risk is the risk that the borrower is unable and unwilling to fulfil the terms promised under loan contract. 12. Which of the following statements is true? A. Credit rationing means that the FI restricts the quantity of loans made available to an individual borrower. B. Credit rationing means that the FI restricts the type of loans made available to an individual borrower. C. Credit rationing means that the FI restricts the quality of loans made available to an individual borrower. D. Credit rationing means that the FI does not have sufficient funds available for lending and thus only grants loans to selected borrowers. 13. Which of the following statements is true? A. An example of a covenant is a restriction that limits those actions of the borrower that have an impact on the probability of repayment. B. An example of a covenant is a restriction that encourages those actions of the borrower that have an impact on the probability of repayment. C. A covenant is a restriction written into either bond or loan contracts. D. All of the listed options are correct. Downloaded by Hoan My Phan ([email protected]) lOMoARcPSD|7582879
14. Which of the following is the correct definition of leverage? A. The ratio of equity to debt. B. The ratio of assets to debt. C. The ratio of debt to assets. D. The ratio of debt to equity. 15. Which of the following statements is true? A. A credit scoring model is a mathematical model that considers a borrower's credit rating to make loan decisions. B. A credit scoring model is a model that relies on expert knowledge to make loan decisions. C. A credit scoring model is a mathematical model that uses observed borrower characteristics to calculate a score representing the applicant's probability of default or to sort borrowers into different default classes. D. A credit scoring model is a mathematical model that uses neural networks to make loan decisions. 16. Which of the following statements is true? A. Zero-coupon corporate bonds are bonds without any intervening cash flows between issue and maturity and thus these bonds typically sell at a large discount from face value. B. Zero-coupon corporate bonds are bonds with semi-annual cash flows between issue and maturity and thus these bonds typically sell at a large discount from face value. C. Zero-coupon corporate bonds are bonds without any intervening cash flows between issue and maturity and thus these bonds typically sell at a small discount from face value. D. Zero-coupon corporate bonds are bonds with annual cash flows between issue and maturity and thus these bonds typically sell at a large discount from face value. 17. Which of the following statements is true? A. Arbitrage means the inability to make a profit without taking risk. B. Arbitrage means that an FI takes risks in order to make a profit. C. Arbitrage means that an FI does not take any and thus does not make a profit. D. Arbitrage means the ability to make a profit without taking risk. 18. Which of the following statements is true? A. Cumulative default probability is the probability that a borrower will default over a specified multi-year period. B. Cumulative default probability is the probability that a borrower will default in any given year. C. Marginal default probability is the probability that a cluster of borrowers will default over a specified multi-year period. D. None of the listed options are correct. 19. Which of the following statements is true? A. Marginal mortality rate is the historic default rate experience of a bond or loan. B. The mortality rate is the probability of a bond or loan defaulting over a specified multi-year period. C. Marginal mortality rate is the probability of a bond or loan defaulting in any given year of issue. D. Marginal mortality rate is the probability of a bond or loan defaulting over a specified multi-year period. 20. Which of the following statements is true? A. RAROC is the risk-adjusted return on capital. B. RAROC is calculated as the capital at risk divided by the loan's income. C. RAROC should always be below an FI's RAROC benchmark as otherwise the FI increases its default risk exposure. D. None of the listed options are correct. Downloaded by Hoan My Phan ([email protected]) lOMoARcPSD|7582879