Question 1

Businesses can obtain funds from which of the following?
A)Loans from life insurance companies
B)Issuing commercial paper
C)Issuing junk bonds
D)Loans from commercial banks
E)All of the above

Accepted Answer

All of the options listed are sources of obtaining funds for businesses. Loans from commercial banks and life insurance companies are traditional sources of financing, while issuing commercial paper and junk bonds are alternative forms of financing.

Question 2

The lender's secondary source of repayment in case of default is:
A)capacity.
B)collateral.
C)character.
D)capital.
E)credit.

Accepted Answer

Collateral is an asset that the lender can claim as repayment in case the borrower defaults on the loan. It acts as a secondary source of repayment after the primary source, which is the borrower's capacity to repay the loan from their income or earnings. The borrower's character, capital, and credit history are also considered in the lending decision, but they do not serve as secondary sources of repayment.

Question 3

A loan that is specifically designed to meet the needs of one or a few companies but has been packaged for resale is known as a:
A)structured note.
B)staggered note.
C)struggling note.
D)marked-for-sale note.
E)specific note.

Accepted Answer

A structured note is a type of debt security that is created to meet the specific needs of a particular issuer. It can be customized to include various features, such as a combination of fixed and floating rate interest payments, principal protection, and exposure to underlying assets such as stocks, currencies, or commodities. Structured notes can be packaged for resale to investors, either directly or through an intermediary such as an investment bank.

Question 4

The ability to repay a loan is measured by a firm's:
A)capacity.
B)collateral.
C)character.
D)capital.
E)credit.

Accepted Answer

The ability to repay a loan is measured by the firm's capacity, which refers to their ability to generate enough cash flow to meet their debt obligations. This includes factors such as their revenue, expenses, and profitability. Collateral, character, capital, and credit are all important considerations for lenders, but they do not necessarily indicate a firm's ability to repay a loan.

Question 5

Banks that emphasize lending to individuals are labeled:
A)wholesale banks.
B)retail banks.
C)personal banks.
D)non-bank banks.
E)regional banks.

Accepted Answer

Retail banks are focused on providing services to individual customers including checking and savings accounts, loans, and mortgages.

Question 6

A security interest in a loan is said to be perfected if the:
A)bank holds the collateral.
B)loan has no protective covenants.
C)borrower is a low credit risk.
D)government guarantees the loan.
E)bank has never lent to the customer before.

Accepted Answer

A security interest is perfected when the lender has taken all necessary steps to ensure their priority in the collateral in case the borrower defaults. This includes holding the collateral or taking control over it through filing a UCC-1 financing statement. Therefore, choice A is correct because the bank holding the collateral shows that they have completed the necessary steps to perfect their security interest.

Question 7

Which of the following refers to a lender's tendency to ignore circumstances in which a loan might default?
A)Complacency
B)Contention
C)Contingencies
D)Competition
E)Carelessness

Accepted Answer

The answer of Which of the following refers to a...

Question 8

In the credit process, which of the following activities falls under Business Development and Credit Analysis?
A)Loan committee reviews
B)Loan documentation review
C)Officer call programs
D)Perfect security interest
E)Process loan payments

Accepted Answer

Officer call programs fall under business development, as they involve reaching out to potential clients and building relationships. Credit analysis involves evaluating a borrower's creditworthiness and determining their ability to repay a loan, which would include activities such as loan committee reviews, loan documentation review, and perfecting security interest. Processing loan payments would fall under loan servicing, which is a separate function from business development and credit analysis.

Question 9

Which of the following is not one of the five Cs of bad credit?
A)Complacency
B)Contention
C)Contingencies
D)Competition
E)Carelessness

Accepted Answer

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

Question 10

The largest single loan category for all banks is:
A)real estate loans.
B)commercial loans.
C)credit card loans.
D)industrial loans.
E)agricultural loans.

Accepted Answer

Real estate loans are the largest single loan category for all banks, as they typically make up the largest portion of a bank's loan portfolio. This is because real estate loans are often larger in size and have a longer repayment period compared to other loan categories. Additionally, real estate loans are seen as less risky because they are often secured by property.

Question 11

Which of the following is the primary emphasis of a values-driven credit culture?
A)Annual bank profit
B)Bank soundness and stability
C)Loan volume
D)Loan growth
E)Short-term earnings

Accepted Answer

A values-driven credit culture prioritizes maintaining the soundness and stability of the bank over short-term earnings or loan growth. Profit and loan volume may still be important, but they take a back seat to ensuring the bank's longevity and reputation for ethical behavior.

Question 12

The risk of potential loss of interest and principal on international loans due to borrowers in a country refusing to make timely payments, as per the loan agreement is known as what type of risk?
A)International risk
B)Foreign risk
C)Continent risk
D)Country risk
E)Government risk

Accepted Answer

The risk of potential loss of interest and principal on international loans due to borrowers in a country refusing to make timely payments, as per the loan agreement is known as country risk.

Question 13

Banks that emphasize lending to commercial customers are labeled:
A)wholesale banks.
B)retail banks.
C)personal banks.
D)non-bank banks.
E)regional banks.

Accepted Answer

Wholesale banks focus on providing financial services to businesses, corporations, and other institutions rather than individual consumers. Lending to commercial customers is a key aspect of their operations.

Question 14

To be classified as a non-current loan, payments must be past due a minimum of how many days?
A)30 days
B)60 days
C)90 days
D)120 days
E)158 days

Accepted Answer

According to generally accepted accounting principles (GAAP), a loan must be past due for at least 90 days to be classified as non-current.

Question 15

In the credit process, which of the following activities falls under Credit Execution and Administration?
A)Financial statement analysis
B)Evaluate collateral
C)Officer call programs
D)Review loan documentation
E)Monitor compliance with loan agreement

Accepted Answer

The answer of In the credit process, which of the...

Question 16

In the credit process, which of the following activities falls under Credit Review?
A)Loan committee reviews
B)Perfecting the security interest
C)Market research
D)Review loan documentation
E)Market research.

Accepted Answer

The answer of In the credit process, which of the...

Question 17

Which of the following is not one of the five Cs of (good) credit?
A)Character
B)Collateral
C)Capital
D)Capacity
E)Credit

Accepted Answer

The five Cs of credit are Character, Collateral, Capital, Capacity, and Conditions. Credit is not one of the five Cs.

Question 18

Which of the following formalizes a bank's lending guidelines?
A)Loan policy
B)Credit culture
C)Credit analysis
D)Credit review
E)Loan documentation

Accepted Answer

A bank's lending guidelines are formalized in their loan policy, which outlines the eligibility criteria for borrowers, the types of loans offered, the loan amount and term limits, the interest rates and fees charged, and the loan application and approval process. The loan policy also sets forth the bank's risk management and underwriting standards, as well as the maximum exposure limits for different types of loans and borrowers.

Question 19

The vast majority of FDIC-insured institutions are classified as:
A)credit card banks.
B)agricultural banks.
C)consumer lenders.
D)commercial lenders.
E)mortgage lenders.

Accepted Answer

According to the FDIC website, the vast majority of FDIC-insured institutions are classified as commercial lenders.

Question 20

Which of the following refers to the principles that drive a bank's lending activity?
A)Loan policy
B)Credit culture
C)Credit analysis
D)Credit review
E)Loan documentation

Accepted Answer

The answer of Which of the following refers to the...

Quiz 13: Overview of Credit Policy and Loan Characteristics

Businesses can obtain funds from which of the following?

The lender's secondary source of repayment in case of default is:

A loan that is specifically designed to meet the needs of one or a few companies but has been packaged for resale is known as a:

The ability to repay a loan is measured by a firm's:

Banks that emphasize lending to individuals are labeled:

A security interest in a loan is said to be perfected if the:

Which of the following refers to a lender's tendency to ignore circumstances in which a loan might default?

In the credit process, which of the following activities falls under Business Development and Credit Analysis?

Which of the following is not one of the five Cs of bad credit?

The largest single loan category for all banks is:

Which of the following is the primary emphasis of a values-driven credit culture?

The risk of potential loss of interest and principal on international loans due to borrowers in a country refusing to make timely payments, as per the loan agreement is known as what type of risk?

Banks that emphasize lending to commercial customers are labeled:

To be classified as a non-current loan, payments must be past due a minimum of how many days?

In the credit process, which of the following activities falls under Credit Execution and Administration?

In the credit process, which of the following activities falls under Credit Review?

Which of the following is not one of the five Cs of (good) credit?

Which of the following formalizes a bank's lending guidelines?

The vast majority of FDIC-insured institutions are classified as:

Which of the following refers to the principles that drive a bank's lending activity?