WorksheetsPre Exam CICC Day 5
Total questions: 20
Worksheet time: 38mins
What is the likely reason for some banks to be active in emerging markets while some banks only want to do business in developed markets?
It is more profitable to do business in developed markets.
Banks are accorded a higher credit rating if they deal only with developed markets.
Banks want to be seen as first-class institutions serving the developed markets.
Banks have different risk appetites and hence may target different markets.
What two measurements can help a bank set its origination targets?
Economic profitability and capital adequacy ratio.
Capital adequacy ratio and RAROC.
Economic profitability and accounting profitability.
Economic profitability and RAROC.
What is the purpose of risk-adjusted return on capital?
To identify investments that generate the highest revenue.
To provide a level comparison between deals with different risk characteristics.
To determine the opportunity cost of deploying capital in different investments.
To identify investments that consume the lowest amount of capital.
Given the information below, what is the income margin on the loan?
Interest rate : 6%
Cost of funds : 4%
Amount of loan : $500,000
$10,000
$20,000
$30,000
$40,000
How can a lender prepare itself for extreme economic events?
By putting in place testing procedures to analyse the impact of catastrophic natural events on the lender's overall credit portfolio.
By using stress-testing procedures to analyse the potential impact of events that can be hedged, on the lender's overall credit portfolio.
By establishing stress-testing procedures to analyse the impact of such events on the credit risk of the lender's overall credit portfolio.
By using random testing procedures when and if management has reason to believe that a major security event is about to take place.
What is the likely reason for some banks to be active in emerging markets while some banks only want to do business in developed markets?
Banks have different risk appetites and hence may target different markets.
Banks want to be seen as first-class institutions serving the developed markets.
Banks are accorded a higher credit rating if they deal only with developed markets.
It is more profitable to do business in developed markets.
How does Credit Portfolio Management adjust its risk-adjusted return indicators?
By replacing credits that have a good risk-return profile with credits that have a better ratio.
By replacing credits that have an acceptable risk-return profile with credits that have a better ratio.
By replacing credits that have a poor risk-return profile with credits that have a better ratio.
By replacing credits that have an unacceptable risk-return profile with credits that have a lower ratio.
Why do riskier loans not always generate more revenue?
A bank may choose not to price a risky loan as high as it should in order to win key deals to secure a relationship with a high-potential client or to win a key client relationship.
A bank may choose not to price a risky loan as high as it should in order to meet regulations or to keep good working relations with the regulators.
You can never be sure of the return you can expect to have on a loan.
The riskier the loan, the lower the return.
Which statement on economic profit measurement is correct?
The less risky the deal, the greater the expected loss and the more capital it will attract.
The riskier the deal, the greater the expected loss and the more capital it will attract.
The less risky the deal, the greater the expected loss and the less capital it will attract.
The riskier the deal, the lower the expected loss and the less capital it will attract.
Given the information below, what is the income margin on the loan?
Interest rate : 5.5%
Cost of funds : 3.9%
Amount of loan : $750,000
$12,000
$18,000
$24,000
$6,000
Which metric is most likely to provide incentive for relationship managers to charge more to clients?
Revenue growth targets.
Number of clients.
Revenue per client.
Risk-adjusted capital.
How can a bank better control its credit portfolio risk after the loan approval process?
Reduce its interest rate hurdles and make sure all loans are secured.
Train its credit risk managers.
Engage in credit risk transfer transactions with other banks through loan sales, trading and debt guarantees.
Refuse to book new loans.
What risk is associated with a bank having its credit portfolio comprised largely of engineering companies?
Technological risk.
Concentration risk.
Management risk.
Operational risk.
What is a fundamental difference between a provision and a write-down?
A provision is taken against the possibility of recovery falling short of the outstanding loan. A write down is taken on the assumption that this will indeed be the actual outcome.
A write-down is taken against the possibility of recovery falling short of the outstanding loan. A provision is taken on the assumption that this will indeed be the actual outcome.
While both provisions and write-downs are taken against the possibility of recovery falling short of the outstanding loan, write-down amounts are much higher than those of provisions.
For what kind of loans do lenders refer to historical trends and figures to estimate the amount of the write-down?
For retail loans.
For business loans.
For commercial loans.
When getting a guarantee, why should independent legal advice be obtained?
As a matter of abundant caution so as not to miss any critical aspect.
Because a guarantee is a legal matter, and legal advice is in order.
To make sure individuals or family-owned businesses understand what they are signing.
Your bank is considering financing a large construction contract. Which action gives your bank a preferential right to receive payments made by the paymaster under this contract?
Your client writes to the paymaster requesting all payments under the contract be made to their account with your bank.
The paymaster agrees in writing to make all payments under the contract to your client's account with your bank.
Your client, the paymaster, and your bank complete an assignment agreement under which all dues under the contract will be paid to your bank.
What is a disadvantage of accepting receivables as collateral?
They might not be marketable.
They are very easy to remove from the company.
There is potential for counterclaims and set-off.
After realizing a building as collateral, what kind of purchaser would the bank likely need to find?
A purchaser who could see the potential to convert the property to another use.
A purchaser with deep pockets who will not be demanding.
Any buyer would do, as long as the price is negotiable.
What are some of the styles of conflict management?
Accommodating, avoiding, unyielding.
Compromising, avoiding, domineering.
Competing, collaborating, compromising.
