Question 1

Basket Default swaps could be

Accepted Answer

The answer of Basket Default swaps could be
...

Question 2

Which of the following shall not be used as a source of information for the credit risk assessment?

Accepted Answer

The answer of Which of the following shall not be...

Question 3

Z spreads in Callable bonds include:

Accepted Answer

Z spreads in callable bonds include both the premium for credit risk and the call option price for prepayment risk.

Question 4

The extension of a guarantee by company A to company B can lower the rating of___________

Accepted Answer

The answer of The extension of a guarantee by company...

Question 5

Change in priority ranking of reference obligations is:

Accepted Answer

Restructuring involves a change in the terms of debt obligations, which can include changes in priority ranking, making it the correct choice.

Question 6

Proportion of fee based income is examined as the same is an _____ efficient source of bank's profitability.

Accepted Answer

The answer of Proportion of fee based income is examined...

Question 7

A coupon bond is trading at 110% of the USD 1000 par value. If the last interest payment was made one month ago and the coupon rate is 12%, the accrued interest on this bond is_______

Accepted Answer

The annual coupon payment is 12% of $1000, which is $120. Since interest is paid annually, the accrued interest for one month is $120/12 = $10.

Question 8

Which of the following are types of bank guarantee?

Accepted Answer

Financial and Performance bank guarantees are the two types of bank guarantees distinguished by their purpose. Financial bank guarantee aims to ensure the payment of a debt, while performance bank guarantee aims to ensure the completion of a project or contract. Deferred and term, as well as usance and sight, are types of payment terms that can be used in guarantees but are not types of guarantees themselves.

Question 9

Attributes of healthy cultural values exclude:

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The answer of Attributes of healthy cultural values exclude:
...

Question 10

Which of the following is not one of the C in the 5 C Model?

Accepted Answer

The answer of Which of the following is not one...

Question 11

In an industry there are only 20 firms and each of them has equal share. Compute Herfindahl Hirschman Index and state the level of concentration in the industry.

Accepted Answer

HHI = (n1^2 + n2^2 + ... + n20^2) * 100
Since each firm has an equal share, the market share for each firm is 1/20 = 0.05
HHI = (20 * 0.05^2) * 100 = 500
An HHI of 500 indicates low concentration in the industry.

Question 12

Which of the following statement is (are) correct? Statement 1: Industry analysis is the first and foremost step in the bottom up approach of analysis. Statement 2: Industry analysis would enable an analyst to figure out the relative positions of various market players and thereby make informed investment decisions.

Accepted Answer

In the bottom-up approach, the focus is on individual companies rather than the industry as a whole, making Statement 1 incorrect. Statement 2 is correct as industry analysis helps understand market positions.

Question 13

Which of the following is a factor considered while evaluating resources profile for rating of bank?

Accepted Answer

All of the factors mentioned - size and growth of deposits, deposit composition and stickiness, and geographic distribution of deposits - are important in evaluating a bank's resources profile for rating. Therefore, option B is the correct answer.

Question 14

For considering the assignment of probabilities, which of the following aspects are taken into account?

Accepted Answer

The answer of For considering the assignment of probabilities, which...

Question 15

Risk in CDS price is reflective of

Accepted Answer

The price of a CDS is reflective of the probability of default of the underlying security. An increase in the probability of default would lead to an increase in the CDS price, as investors would require a higher premium for insuring against the default risk. On the other hand, a decrease in the probability of default, increase in interest rates, or increase in recovery rates would result in a decrease in the CDS price.

Question 16

Under an advance factoring contract, following flow of money takes place: A: Factor pays a percentage of the invoice face value to the seller at the time of sale B: The remainder of the purchase price is held by factor until the payment by the account debtor is made. C: The cost associated with the transaction is paid upfront by the seller to the factoring agent.

Accepted Answer

Under an advance factoring contract, the seller receives a percentage of the invoice face value at the time of sale (option A), while the remainder of the purchase price is held by the factor until the account debtor makes payment (option B). The cost associated with the transaction is typically deducted by the factor from the remaining balance and not paid upfront by the seller (option C). Therefore, options A and B are correct, but option C is not. The best choice is D, which includes options A and B but excludes option C.

Question 17

An increase in the salaries of the bank employees due to new bank employee pay commission implemented by the Central Government will lead to deterioration of which of the following ratios: A: Cost to Income Ratio B: Net Interest Margin C: Core Spread

Accepted Answer

An increase in salaries of bank employees will lead to an increase in expenses, which will in turn increase the cost to income ratio, thus deteriorating this ratio. Net interest margin and core spread will not be affected by the increase in salaries of bank employees.

Question 18

If you yield curve is humped and the medium rates drop, what will happen to the yield curve?

Accepted Answer

The answer of If you yield curve is humped and...

Question 19

Which of the following statement is false?

Accepted Answer

A, C, and D all indicate investment grade ratings, while B indicates a speculative grade rating.

Question 20

In Steepening short term rates ______relative to long term rate

Accepted Answer

The answer of In Steepening short term rates ______relative to...

Exam 1: Certified Credit Research Analyst