Credit Instruments, Collateral, and Secured vs. Unsecured Credit

What is a credit instrument?

• A tool used to measure credit scores

• A financial agreement facilitating borrowing and lending

• A physical document proving creditworthiness

• A government-issued loan policy

Which of the following is an example of trade credit?

• A business buying goods now and paying later

• A customer using a credit card

• A company taking out a mortgage loan

• A bank issuing a promissory note

Letters of credit are mainly used in:

• Mortgage loans

• International trade transactions

• Personal loans

• Payday lending

Which type of credit instrument allows a borrower to access funds up to a set limit as needed?

• Trade Credit

• Promissory Note

• Bank Credit Line

• Letter of Credit

A promissory note is:

• A type of trade credit

• A legally binding promise to pay a specific sum

• A document that guarantees a credit limit

• A loan with no collateral required

Collateral management involves:

• Managing financial accounts

• Securing transactions by managing pledged assets

• Tracking loan repayments

• None of the above

Which of the following is not considered financial collateral?

• real estate

• bonds

• equities

• cash

Collateral valuation is the process of:

• Appraising a borrower's income
  

• 
  Determining the market value of pledged assets
  

• Calculating the credit score of a borrower
  

• Checking credit history

Which of the following reduces risk exposure for lenders?

• Over-collateralization

• Margin calls

• Diversification

• All of the above

Margin calls occur when:

• A borrower fails to make payments

• The value of collateral falls below the required level

• A bank issues a new loan

• A lender offers a credit line increase