Int Banking Topic 6 Part 2

What is soft information?

• Information on bank financial statements i.e. balance sheets and income statements

• Information on debtors' quality/creditworthiness based on close relationship

• Information kept using computer software

• Information on the interest rates offered by banks

What is adverse selection?

• Those who apply for loans are the most likely to default

• The bad behaviour of borrowers after credit is given

• The process of selecting good borrowers

• The adverse effects of bad credit score

What best describes moral hazard?

• Bad behaviour of borrowers after loans are released

• Bad behaviour of loan applicants

• Refers to bad credit quality

• Bad moral of credit officer in doing credit analysis

What is gap analysis?

• Analysis on difference in the maturity of interest sensitive assets and interest sensitive liabilities

• Analysis on difference in the amount of interest sensitive assets and interest sensitive liabilities

• Analysis on the gap of equity and and liability

• Analysis on the gap between fixed and liquid assets

The following are the methods to minimize credit risk EXCEPT

• Credit rationing

• Loan pricing

• Asking for collateral

• Asset liability management

Currency risk can be mitigated using the following EXCEPT

• Hedging

• Duration analysis

• Insurance

• Use multicurrency share capital

Adverse selection is related to

• Loan pricing

• Gap analysis

• Credit rationing

• Diversification

What determines the price of the loan?

• Borrower creditworthiness

• The amount of deposits

• Bank liquidity position

• Bank officer's mood

What is the meaning when we say two perfectly correlated portfolios?

• Portfolios on bank loans that have similar maturity

• Portfolios on bank loans that are identical in the level of risk exposure

• Portfolios on bank loans that have different level of risk exposure

• Portfolios on bank loans that have different interest rates

What are the main components in an ALM approach?

• Fixed assets and current assets

• Liability and equity capital

• Interest sensitive assets and interest sensitive liabilities

• Short term deposits and long term deposits