Which best describes the effect that political decisions and frequent legislation changes in India have on its business and industry risk?

Demonetisation of high denomination currency notes is an example of legislation that negatively affects small businesses working with cash.

Banks absorb most of the impact and businesses are less affected as a result.

Taxation policies cause businesses to be less transparent in their financial reporting.

Opportunistic decisions that influence monetary policy can negatively affect a business’s financial performance

How can a company’s management best minimise the impact of potential interruptions in the input supplies?

Ensure that there is an alternate supply source for all key inputs.

Hold large stocks for all key supply inputs

Maintain good personal rapport with the key input suppliers.

Which proposition is least likely to be considered for a term loan for its financing requirements?

Daily working capital requirements for a small business.

Expansion of a fleet of vehicles.

Capital expenditure for a power plant

An instalment financing construction project.

Which lists the primary components of India’s corporate debt restructuring (CDR) system?

CDR Standing Forum, CDR Empowered Group, CDR Cell.

Debtor-creditor agreements, inter-creditor agreement

Multiple banking accounts, syndications, consortium account

Repayment period, repayable amount, instalment amount, interest rate.

What is the benefit of setting meaningful forecast assumptions in the overall projection process?

To enable a realistic assessment of the projected financial performance that a credit decision is substantially based on.

To confirm future loan payments will be achievable.

Assumptions depend on the results of the projections

To reflect factors independent of management’s past performance.

XYZ trucking company (XYZ) has recently entered into an arrangement with an online sales business to deliver their general consumer goods and expect that this partnership will improve their sales. XYZ has sought enhanced financing to support this new business. The transportation industry is in a decline due to a recession, and XYZ’s most recent annual financial statement shows relatively weak sales performance. What is the next step in assessing XYZ’s credit application?

The assessment should continue with more focus on the sales projections scenarios and cash flow impact.

The assessment should end, and credit should be declined.

The assessment should be postponed until the industry enters the recovery stage.

The assessment should continue and focus on total profit as a measure of success.

Which is an example of a liquidity early warning signal?

Frequent overdrafts that are covered in a few days.

Non-consolidation of subsidiaries’ accounts

A large cheque that is returned for insufficient funds.

When allowing a customer to draw under a domestic bill discounting facility, why is it important to confirm that there is an underlying movement of goods?

To ensure that financing is provided only for goods that have been shipped to existing customers

To ensure that the transaction is not a one-off.

To avoid providing financing for intergroup transactions

To reduce the possibility of providing accommodation finance.

What is a characteristic of a good business plan

Being reactive to changing demand

Defining who is accountable to the plan

Which source of external information about a company’s past behaviour can be used to assess its management integrity?

Opinion about management included in credit agency reports.

Details of dividends paid over the last five years.

Account statements showing whether the company has met its obligations to the bank on time

Company A had outstanding trade payable for an average of 44 days in Fiscal Year-End (FYE) 1 and 41 days in FYE 2. Company B had outstanding trade payable for an average of 52 days in FYE 1 and 55 days in FYE 2. Which of Company A or Company B is most likely to borrow funds, and why?

Company A due to reduced cash flow.

Company B due to reduced cash flow.

Company A due to increased cash flow.

Company B due to increased cash flow.

What must a lender do to assess the effect of a company’s capital expenditures on its cash flow?

Understand the purpose of spending and changes in cash flow.

Use accumulated depreciation to estimate net cash flow.

Determine asset value and compare to expected revenues.

Review increased capital assets and evaluate serviceability.

Which factor can make it difficult to project a business’s financial performance based on historic trends?

Economic and competitive environments.

Minimum rate for the lender’s return on assets.

In which scenario would customer concentration cause significant cash flow risk for a business?

The business supplies specialised parts to the largest auto maker.

The business sells clothing to individual consumers.

The business distributes flour to most bakeries in the region.

The business provides cleaning services to schools, offices and residential buildings.

What is the primary function of stock statements in the administration of fund-based working capital limits?

To provide evidence that can be used in legal proceedings.

To provide monthly movement in the level and quality of inventory and receivables.

To indicate the aging profile of inventory and receivables for calculation of the eligible items.

What is the primary purpose of calculating drawing power in a funds-based working capital facility?

To determine the amount the customer can draw on.

To ensure that bank funds are not tied up in obsolete stocks.

To ensure that drawings are being used to fund current assets.

To check that the value of eligible assets is at least equal to the approved credit limit.

What information in a credit agency report can help a bank assess a company’s management integrity?

Opinion about the company management.

Information about the financial performance.

How freely the management shares information.

Details on covenant compliance for the bank loans.

What is one benefit of cash accounting?

It provides a cash-flow-based statement of profit and loss.

It records cash and non-cash components of a transaction.

It records all transactions of a particular accounting period.

It gives a complete view of the financial status of a business.

Why does a special purpose vehicle expose a lender to more risk than conventional financing?

The loan is repaid only from the project’s cash flows.

The loan has no security guaranteed.

The sponsor is the only party liable for the loan.

Which action might a company take when it is in the cash concern stage of financial distress? <br />

Eliminating management positions.

What is a way to conduct an inventory check when verifying the entire inventory is not feasible?

Review work in progress records

Review Central Excise taxation records.

What previous management action is likely to raise doubt about management integrity and whether to enter into a credit relationship with a business?

Making tweaks to reported accounts to mask a declining financial performance.

Marginally increasing the dividend payout ratio compared to the previous financial year.

Making changes to the board of directors and audit committee to increase the proportion of independent directors.

What is the primary source of cash flow used in calculating debt repayment capacity?

Cash generated from operations.

What is the primary purpose of the loan pricing process?

To determine appropriate interest rate and fees in line with the risk assumed.

To assess the probability of loss in the event of default.

To calculate the profitability of the loan transaction for the bank.

To support the lender’s position in the negotiation process with the borrower.

Which action by a borrower’s management team could have an adverse effect on its cash flow and ability to meet its obligations?

Adopting a conservative business planning strategy.

Setting business plan objectives that are overly aggressive.

Disclosing confidential information to other stakeholders on a need to know basis.

Moody's Practice Test 2

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Professional Development

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100 questions

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the main purpose of conducting a competitive analysis during the loan pricing decision process?

To calculate the lowest lending rate the bank is willing to apply to theloan

To determine the probability of loss based on the competitor’s ratepricing

To persuade the relevant committee to approve a lending rate lower than those of competitors.

To determine whether the lending rate should be adjusted based on the ceiling established by other lenders.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What part of the loan pricing process sets an interest rate floor, below which the loan is financially undesirable?

Cost analysis.

Loanstructuring

Loanaccounting.

Competitive analysis

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is meant by the term “excess borrowings” under the Tandon Committee approach to lending?

The amount borrowed exceeds current liabilities

The liquidity level exceeds the minimum required.

The maximum permissible bank borrowings exceed current assets.

The minimum required net working capital exceeds the actual amount.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which describes the absolute priority rule with respect to payments made to creditors at default?

Subordinated debt is paid before insolvency-related costs.

Available funds are paid first to the lowest ranked class until the borrower’s obligations are fully satisfied.

Available funds are paid first to the highest ranked class until the borrower’s obligations are fully satisfied

Distributions to each ranked class are paid out proportionately based on its percentage in the company's capital structure

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

At what stage in the management cycle should the management consider the effect of changes in the external environment on the company’s business goals?

Assessing business needs

Developing plans to meet goals

Aggregating and organising resources.

Adjusting plans, resources, and methodologies.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What factor plays a key role in influencing the industry due to a large bargaining power of a significant supplier?

Labour disruptions

Liberal credit terms

Decreased sales prices

Improved service levels

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

How might an inadequate management succession plan affect a business’s cash flow?

Training the new managers to address their skill gaps may result in excessive costs.

Cost of hiring for the positions vacated due to promotion of the new managers will impact the cash flow.

Weak relationship of the new managers with the bank staff may result in the credit facilities not being renewed

Poor decisions of the new managers that lack sufficient skills or experience might result in weaker business performance.

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Moody's Practice Test 2

What is the main purpose of conducting a competitive analysis during the loan pricing decision process?

What part of the loan pricing process sets an interest rate floor, below which the loan is financially undesirable?

What is meant by the term “excess borrowings” under the Tandon Committee approach to lending?

Which describes the absolute priority rule with respect to payments made to creditors at default?

At what stage in the management cycle should the management consider the effect of changes in the external environment on the company’s business goals?

What factor plays a key role in influencing the industry due to a large bargaining power of a significant supplier?

How might an inadequate management succession plan affect a business’s cash flow?

Which best describes the effect that political decisions and frequent legislation changes in India have on its business and industry risk?

What is considered as one of the three levels of oversight in the corporate governance process?

How can a company’s management best minimise the impact of potential interruptions in the input supplies?

Access all questions and much more by creating a free account

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Popular Resources on Wayground

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