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WorksheetsPre Exam CICC Day 10
Total questions: 20
Worksheet time: 30mins
Why is an increase in inventory turnover ratio considered an early warning sign?
Increase in inventory turnover ratio indicates liquidity surplus that is prone to be misused.
Increase in inventory turnover ratio implies that the sales are declining.
Increase in inventory turnover ratio will cause liquidity issues due to decrease in cash flow.
What is an early warning sign related to management?
High compensation.
Loss of reputation.
Ordinary lifestyle.
What is one of the regulatory consequences for a lender with a large portfolio of problem loans?
High legal costs.
Higher funding costs.
Change of management control.
Which of these events would be of concern to you?
The business has changed to a more reputable auditor firm as the previous auditor firm was always late in its submission.
Rapid rise in a business’s share price.
An auditor qualifies the business’s audited accounts.
At which stage should a company be put on a watch list?
Cash crisis stage.
Cash concern stage.
Cash crunch stage.
Which action might suggest that the owners of your family-owned client are withdrawing corporate funds for personal purposes?
Redemption of debentures held by shareholders.
Purchase of personal assets in the name of the business.
Dividends paid to shareholders.
What can an unusually large cash transaction indicate about a client's business and operations?
It can indicate that a client with a restricted cash flow having a problem prioritising payments.
It can indicate that the business is raising funds from a third party.
It can indicate the existence of payment plans between the borrower and its creditors.
Which early warning sign indicates a fundamental issue related to business and operations?
Loss of major client or contract.
High seasonality or cyclicality.
Negative rumours.
Where would you find warning signs of a client's decreasing or negative profits or cash flows?
The business's management reports.
The business's accounting policies.
The business's financial statements.
At which stage of financial distress should a Relationship Manager start to discuss how to improve the situation with the business’s management and begin to monitor its progress?
Cash concern stage.
Cash crunch stage.
Cash crisis stage.
Identify three potential negative consequences of reputational damage for a financial institution.
Higher funding costs; loss of clients; reduction of its external rating.
Higher funding costs; a more robust credit decision process; lowering of its external credit rating.
Reduction of its external rating; a more selective credit decision process; a more thorough due diligence process.
At what stage of a problem loan should the Relationship Manager involve the Workout Department?
Cash crisis stage.
Cash crunch stage.
Cash concern stage.
For a bank, what is one of the direct negative consequences of credit losses resulting from a substantial portfolio of problem loans?
High legal costs and lengthy recovery process.
Serious negative implications for maintaining the regulatory capital of the bank.
Closer monitoring procedures, more frequent audits and additional reporting.
What type of loan commitment would be listed as an off-balance sheet activity?
Undrawn revolving operating line of credit.
Banker's acceptance.
Exchange-of-currency swap.
Commercial letter of credit.
What is the main activity of private banking?
It manages the assets of high-net-worth individuals.
It serves large domestic and international companies.
It provides readily accessible savings products to the public.
It provides micro-loans to very small individual enterprises.
What is the internal measurement approach to calculating a company's operational risk? =
Determine a financial instrument's price sensitivity to changes in interest rates.
Divide a bank into business units, and then use individual indicators to calculate the exposure to operational risk.
Allow each bank to use individual internal loss data to determine capital allocation.
Allocate capital using gross income as an indicator to a bank's exposure to operational risk.
How would a standby letter of credit issued by a bank on behalf of a customer be listed on the bank's financial statements?
Under notes payable.
As an intangible asset.
As a contingent liability.
Under other accrued expenses payable.
What is the multiplier effect?
New deposits accumulate interest for depositors, who then use the income to make new investments.
New deposits flow through the monetary system to produce new income streams for the bank.
New loans produce more income for the bank through the accumulation of interest.
New loans flow through the monetary system to generate new deposits elsewhere in the system.
What is the risk of exposure to potential loss that could result from changes in market prices?
Liquidity risk.
Operational risk.
Credit risk.
Market risk.
What type of risk can be managed by taking security over a loan?
Credit risk.
Operational risk.
Cyber risk.
Market risk.
