WorksheetsPractice Test Moody's Analytics
Total questions: 50
Worksheet time: 52mins
Based on these information: current secured INR 35,000 and current unsecured INR 20,000; non- current secured INR 75,000 and non-current unsecured INR 60,000, what is this company’s total amount of subordinated debt outstanding?
INR 55,000
INR 80,000
INR 110,000
INR 135,000
What would describe a non-fund-based facility?
A facility that is lower risk than a fund-based facility.
A facility that may result in a funded obligation if the customer fails to settle any payments due.
A credit facility that incurs a monetary obligation when draw down occurs.
A facility that is similar to a fund-based facility in terms of how it is recorded in a bank’s books.
How are surrounding businesses affected when an environment is dominated by two large employers?
Neutral on sales and profitability.
Loss of one of the employers creates high over all risk.
Increased employment reduces the risk for theindustry.
The impact is significant only if a catastrophic market down turn occurs.
what type of capital investment is intangible and financial in nature?
Applying for patents
Developing new products.
Listing securities on a stock exchange.
Replacing existing plant and equipment.
For how many days can an account remain continuously in excess of the sanctioned limit before it is considered out of order?
30
60
90
120
which party enforces a bank guarantee in the event of default?
Applicant
Beneficiary
Government
Guarantor
which factor will most likely reduce loss given default?
Amount of the loan
Duration of the loan
Industry of the borrower
Seniority of the loan
During which implementation phase of deal structure is counsel instructed on documentation and covenant definition issues?
Design
Drawdown
Monitoring
Negotiation
which is an example of an insurance covenant in a credit agreement?
Prohibition on providing other creditors security over any assets
Restriction on incurring new debt above a pre-determined amount
Requirement to pay premiums on schedule to avoid a lapse of coverage.
Obligation to submit security valuations performed by an independent appraiser.
which financial trigger can be set up internally as an early signal of a borrower’s probability of default?
Change in profit projections
Change in ownership structure
Unexpected change in dividend policy
Emergence of new competitive entrants in the market
what is the purpose of a letter of credit?
To protect the bank from loss
To facilitate trade
To offer a security
To guarantee performance
what external factors outside of a business’s control can affect its liquidity levels?
Credit and lending policy
Facility and loan structure
Industry and business risk
Management and key persons’ risk
which industry factor increases the need for a company to compete for a high volume of sales to remain profitable?
High fixed costs
Few competitors
High switching costs
Rapid demand growth
which action might a company take when it is in the cash concern stage of financial distress?
Selling vital assets
Cancelling bonuses
Laying off key employees
Eliminating management positions
what does a current ratio of 1.33 indicate about a company’s current assets?
Current assets are less than net working capital
Current assets are able to cover double the current liabilities
Very few current assets have been funded from current liabilities
A portion of current assets has been funded from long-term sources
In which condition can a local business perform well while the local economy is in recession?
Local competition is weak
The business has a high profit margin
The business sells high quality and durable products
The local economy of business’s customers is thriving
which is likely to be false of a company with a low gearing ratio?
It has a high debt load
It has high interest costs
It has high repayment ability
It has a high repayment obligation
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 the starting point in the process of projecting a business’s financial performance?
Evaluate economic factors
Complete sensitivity analysis
Project future values for the risk drivers
Review historic levels of the risk drivers
does the credit risk premium attributed to in the credit pricing process?
The bank’s risk appetite
Expected return on equity
The bank’s growth strategy
Losses incurred due to default
At the beginning of the year, ZXV Inc. acquires computer equipment at a cost of INR 500,000. Using a 40% declining balance depreciation rate each year, what is the depreciation charge for this equipment in the second year?
INR 120,000
INR 180,000
INR 20,0000
INR 300,000
which result of an increase in management risk will most negatively affect a company’s financial performance?
Managers’ increased focus on their own compensation packages
Managers fail to take timely or correct decisions that affect sales or costs
Managers fail to take full advantage of favorable developments in the external environment
Managers are less transparent in their dealings with external stakeholders, such asbanks
what is the number of inventory days for a company with sales of INR 500,000, inventory of INR 60,000, and cost of goods sold /Cost of sales of INR 300,000 and trade receivables of INR 125,000?
73
152
175
219
what is the primary reason for assessing a business’s financial performance before extending credit?
To determine what a company’s key ratios are
To determine how a business generates cashflow
To determine how a company spends its free cashflow
To determine why a business has achieved certain results
What general inference can be made about a company that has positive cash flow from operations, and that is borrowing and investing?
It is starting up
It is closing down
It is restructuring
It is acquiring other companies
What is the most effective measure of a business’s operating efficiency?
Increase in sales
Increase in profits
Absolute level of operating expenses
Trends in operating expenses as a percentage of sales
A company that records the market value of its equipment on its balance sheet has not followed which accounting principle?
Cost
Matching
Conservatism
Going concern
What test is used to determine whether a borrower will generate enough cash flow from day-to- day operations to cover its debt obligations?
Bias to fail test
Liquidity test
Secondary source test
Solvency test
Special Mention Accounts were introduced as a new asset category between which two categories?
Doubtful and Loss
Standard and Doubtful
Sub-standard and Doubtful
Standard and Sub-standard
Which type of structural mitigation is used to ensure that all intercompany transactions occur at arm’s length?
Collateral
Guarantee
Monitoring
Restrictive covenant
What type of credit rating will most likely cause a borrower’s credit score to be adjusted downward because of an expected downturn in the borrower’s industry?
Fail grade rating
Single risk rating
Facility risk rating
External international rating
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
What is the profit before tax and financial costs for a company with sales of INR 5,000,000, cost of goods sold of INR 2,600,000, operating expenses of INR 1,400,000, interest expense of INR 60,000 and tax expenses of INR 125,000?
INR 815,000
INR 940,000
INR 1,000,000
INR 1,185,000
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
What type of credit rating is most appropriate to evaluate the credit risk of a group of borrowers that has never borrowed money before?
Corporate family rating
Issue rating
Issuer rating
Short-term rating
Which item is evaluated more substantively when determining the amount of financing available to a company under the assessed bank finance method as compared to the maximum permissible bank finance method?
Current ratio
Assets
Liquidity
Trade payables
How should a customer’s account activity be monitored to ensure end-use of funds?
Review a percentage of all the transactions
Scrutinize all the transactions regardless of value.
Review the transactions above a threshold amount
Browse through the account and investigate any unusual transaction
Companies operating in which industry are most likely to have a high investment in fixed infrastructure assets, with little inventory?
Electric utility
Food retailing
Home construction
Financial services consulting
Which factor will decrease a buyer’s market risk in the long term in conditions where the supplier has high bargaining power?
Buyer’s ability to pay
Increase in supplier’s market share
High demand skilled workers are employed by the supplier
Availability of substitute products in themarket
What information should be reviewed in the periodic progress reports on implementation of a project to assess likelihood of meeting the loan repayment obligations?
The project implementation is on schedule
Funding is available to cover any cost overruns
There are orders for the project outputs once completed
Project reports have been approved by the lender’s engineer
Why is management integrity the most critical factor when assessing the impact of management risk on a company’s credit risk?
Management lacking integrity may prioritize payments to other external stakeholders
A lack of integrity can result in a company using cash flows for purposes other than interest or loan payments
A lack of integrity can result in a company’s underperformance and subsequent inability to meet its payment obligations
A positive assessment of management integrity is necessary for a lender to be confident in the reliability of the information provided by the company
What governing body for the Insolvency and Bankruptcy Code would set up accreditation for insolvency professionals and information utilities?
Adjudicating Authority
Debt Recovery Tribunal
Insolvency Professional Agency
Insolvency and Bankruptcy Board of India
Which proposition is least likely to be considered for a term loan for its financing requirements?
Expansion of a fleet of vehicles
Capital expenditure for a powerplant
An instalment financing construction project
Daily working capital requirements for a small business
What is the primary reason for reviewing external information when assessing a company’s credit quality?
To evaluate any adverse press coverage of the company.
To assess the company’s vulnerability to natural disasters
To review any gradual economic changes that may affect the company’s industry
To evaluate what developments may create opportunities for the company or adversely affect its performance.
Which factor will most likely affect the length of time it takes to convert inventory to sales?
Increased financing
New products
Management decisions
Accounts payable growth
What is the difference between a partnership firm and a Limited Liability Partnership (LLP)?
If a partner dies a partnership firm continues to exist and an LLP dissolves
An LLP is governed by the Indian Partnership Act and a partnership firm is governed by the Companies Act
The income from a partnership firm stays within the firm and LLP income is personal income for the
partners
An LLP is a separate legal entity from its members and a partnership is not a separate legalentity
How many days is the short-term financing gap for a company with 47 trade receivables days, 68 inventory days and 63 trade payables days?
42
52
84
178
What is the first step for a management team in order to achieve results through the efforts of others?
Set the strategic direction
Source the necessary resources
Incentivise the organisation in an effective manner
Manage the critical business operations on a daily and long-term basis
What type of non-fund-based lending facility would a buyer of goods and services use to guarantee a one-time payment?
Export credit
Letter of Credit
Term Loan
Overdraft
Which costs related to environmental hazards can have a significant negative impact on a company’s credit risk?
Cost of insurance premiums
Cost of hazardous waste clean-up
Cost of compliance with environmental laws
Cost of professional assessment of facilities for safety
