Question 1

The most important metric for a bank is the Net Interest Income (NII) which is the difference between____income and____expense.

Accepted Answer

The Net Interest Income (NII) is the difference between the interest income earned by the bank through its lending activities and the interest expense it pays out on its sources of funding. Therefore, the correct options are those that mention Interest Income and Interest Expense. Choice A describes only Interest Income and Total Expense, which is not the correct combination, and choices B and D do not include the term Interest Expense at all.

Question 2

Which of the following is NOT a conceptual definition of credit risk on which credit models are based?

Accepted Answer

The Value-at-Risk paradigm is actually a methodology used in risk management that estimates the potential loss in value of a portfolio of assets or liabilities over a certain time period and a given level of confidence. It is not a conceptual definition of credit risk on which credit models are based. The Default Mode and Mark-to-Market paradigms, on the other hand, are two of the main conceptual definitions of credit risk that credit models use to assess the probability of default and the potential loss given default.

Question 3

Statement 1: The Yields on the MBS PTCs are normally higher than the yields on the corporate bonds of similar ratings. Statement 2: The reason for difference in yields on the corporate bonds and similarly rated PTCs is on account of the optionality in the PTC, the unfamiliarity of the structure and uncertainties in respect of legal and structural issues. Which of the above statements is correct?

Accepted Answer

The answer of Statement 1: The Yields on the MBS...

Question 4

Which of the following factor is considered while undertaking management evaluation?

Accepted Answer

The answer of Which of the following factor is considered...

Question 5

During FY13, Small Bazar, a leading retail company has sold three of its prime properties for a sum of USD 24 Million. The same had a carrying value of USD 30 Million. Analyst had considered the same as operating income and considered it to be part of operating expenses. However, she realized her mistake and recorded the loss as non-operating loss. Which of the following ratio will not change despite the correction? A) EBITDA Margins B) Interest Coverage C) PAT Margins D) Gross Profit Margin

Accepted Answer

The answer of During FY13, Small Bazar, a leading retail...

Question 6

The _______ cycle is the length of time between the company's outflow on raw materials and the manufacturing expenses and the inflow of cash from the sale of goods.

Accepted Answer

The operating cycle refers to the time it takes for a company to purchase raw materials, turn them into finished goods, and sell them to customers, and receive payment for those goods. It represents the time it takes for a company to convert its investment in inventory and manufacturing expenses into cash receipts from sales.

Question 7

Which of the following is false in case of credit enhancements?

Accepted Answer

Credit enhancements are designed to mitigate the default risk of the borrowing entity, thereby improving their overall creditworthiness in the eyes of lenders. It does not deteriorate the creditworthiness of the borrower.

Question 8

Based on the Moody's KMV model which of the following is not correct? A: Growth variables are important for default analysis. rapid growth will lead to lower probability of default and rapid decline will lead to higher probability of default. B: Activity ratios are relevant for default analysis. A large stock of inventories relative to sales will lead to a higher probability of default.

Accepted Answer

Statement A is true according to the Moody's KMV model, but statement B is not. The Moody's KMV model does not consider activity ratios such as inventories relative to sales as relevant for default analysis.

Question 9

Bank A has an imaginary portfolio of USD 1000 Million distributed towards following four entities:  Bank A is stipulated to maintain a capital adequacy ratio of 11% on its risk weighted assets. It is being stipulated that the ratings for all the four entities is expected to be downgraded by 1 notch each. Estimate the amount of new capital required for Bank A?

Accepted Answer

The answer of Bank A has an imaginary portfolio of...

Question 10

Project 1: Company X has a sugar mill at Philadelphia and is replicating same at Toronto. Project 2: Company Y has a sugar mill at Philadelphia and is increasing capacity from 100000 MT to 140000 MT per annum. What type of projects are Project 1 and Project 2?

Accepted Answer

The answer of Project 1: Company X has a sugar...

Question 11

Which of the following may lead to the deterioration in credit profile of a bank? Statement
1) Bank's Capital adequacy falling below regulatory requirement. Statement
2) Rise in Slippage ratio

Accepted Answer

Statement 1 is correct as a bank's capital adequacy falling below the regulatory requirement implies that the bank is not holding enough capital to cover its risk-weighted assets, which indicates weak financial health and a higher risk of default. This can lead to a deterioration in credit profile.
Statement 2 is also correct as a rise in slippage ratio means an increase in non-performing assets (NPAs) or bad loans, which signifies weak credit quality and deteriorating asset quality, leading to a decline in credit profile.

Question 12

Short term rates are determined by____________

Accepted Answer

The answer of Short term rates are determined by____________
...

Question 13

Stand by letter of credits are typically taken as credit enhancement for___________

Accepted Answer

The answer of Stand by letter of credits are typically...

Question 14

Step up upon feature will lead to

Accepted Answer

Step up upon feature refers to a provision in a bond that allows for an increase in the coupon rate or yield if the bond issuer fails to meet certain conditions or if a specified event occurs. The feature provides added compensation to investors for taking on additional risk.

Therefore, a step up upon feature will have a positive basis because it provides additional compensation to the bondholder, which is seen as a positive credit quality feature. This means that the value of the bond will be higher than similar bonds without the step-up feature, leading to a lower yield for the investor.

Question 15

Butterfly strategy is a combination of

Accepted Answer

The answer of Butterfly strategy is a combination of
...

Question 16

Awesome Mobile Ltd is a leading mobile seller who manufactures mobile phone under own brand Awesome. Which of the following is the biggest business risk for Awesome?

Accepted Answer

The answer of Awesome Mobile Ltd is a leading mobile...

Question 17

A holder of which of the following types of bonds is least likely to suffer from rising interest rates?

Accepted Answer

Floating rate bonds have their interest rates adjusted periodically based on a benchmark rate such as LIBOR. Hence, their interest payments increase along with rising interest rates. Therefore, the holders of floating rate bonds are least likely to suffer from rising interest rates. On the other hand, fixed rate bonds and zero-coupon bonds have predetermined interest rates, which do not change with changes in market interest rates. As a result, the holders of these bonds may suffer losses if interest rates rise, as the value of their bonds may decline in response to new bonds offering higher interest rates.

Question 18

Which of the following is not an importance of the sovereign rating? A: To arrive at cost of lending to a country B: To set lower floor for the rating of the corporate and banks of the countries on international scale. C: For determining the risk levels for international investment portfolios

Accepted Answer

The importance of sovereign ratings includes determining the cost of lending to a country and the risk levels for international investment portfolios. However, it does not set a lower floor for the rating of the corporate and banks of the countries on an international scale. Therefore, option B is not an importance of the sovereign rating.

Question 19

In a weakening economy, which of the following is least accurate?

Accepted Answer

The answer of In a weakening economy, which of the...

Question 20

Which of the following statements concerning having a CEO serve as chairman of the board is most accurate? Having a CEO also serve as chairman is considered:

Accepted Answer

It is considered poor corporate governance practice to have the CEO also serve as chairman of the board as it creates an inherent conflict of interest when determining management compensation, among other factors. Separating the roles of CEO and chairman promotes good corporate governance and ensures a properly-functioning board.

Exam 1: Certified Credit Research Analyst

The most important metric for a bank is the Net Interest Income (NII) which is the difference betweenincome andexpense.