Chapter 13
Which of the following would be considered a "positive" loan covenant? a. Days receivables outstanding cannot exceed 30 days b. No change in senior management c. Capital outlays cannot exceed $1,000,000 per year d. No additional liens may be placed on the collateral e. The bank must approve any firm mergers or acquisitions
a. Days receivables outstanding cannot exceed 30 days
Which of the following formalizes a bank's lending guidelines? a. Loan policy b. Credit culture c. Credit analysis d. Credit review e. Loan documentation
a. Loan policy
_______________________ represents the amount of long-term financing required for current assets. a. Permanent working capital b. Seasonal working capital c. Secondary working capital d. Perpetual working capital e. Passive working capital
a. Permanent working capital
The ability to repay a loan is measured by a firm's: a. capacity. b. collateral. c. character. d. capital. e. credit.
a. capacity.
The largest single loan category for all banks is: a. real estate loans. b. commercial loans. c. credit card loans. d. industrial loans. e. agricultural loans
a. real estate loans.
Widespread use of credit scoring: a. standardizes the perceived quality of different loan types. b. decreases the supply of credit. c. increases market interest rates. d. reduces the costs of the associated loans. e. all of the above.
a. standardizes the perceived quality of different loan types.
Banks rarely provide: a. start-up capital loans. b. mortgage loans. c. automobile loans. d. agricultural loans.. e. commercial loans.
a. start-up capital loans.
Which of the following is not one of the five Cs of bad credit? a. Complacency b. Contention c. Contingencies d. Competition e. Carelessness
b. Contention
Which of the following refers to the principles that drive a bank's lending activity? a. Loan policy b. Credit culture c. Credit analysis d. Credit review e. Loan documentation
b. Credit culture
The lender's secondary source of repayment in case of default is: a. capacity. b. collateral. c. character. d. capital. e. credit.
b. collateral.
When a bank lends in a narrow geographic area, they are subject to: a. country risk. b. concentrated risk. c. historical risk. d. charge-off risk. e. portfolio risk.
b. concentrated risk.
The highest ROA and charge-off rates in 2012 were reported by: a. agricultural banks. b. credit card banks. c. commercial lenders. d. consumer lenders. e. international banks.
b. credit card banks.
Asset based loans: a. are not generally tied to inventory. b. include loans to finance leveraged buyouts. c. put more weight on cash flow than collateral when evaluating the loan. d. All of the above. e. None of the above.
b. include loans to finance leveraged buyouts.
Venture capital financing that comes in the "later rounds" of financing may take the form of: a. start-up capital loans. b. mezzanine financing. c. automobile financing. d. seed money. e. staff financing.
b. mezzanine financing.
To be classified as a non-current loan, payments must be past due a minimum of how many days? a. 30 days b. 60 days c. 90 days d. 120 days e. 158 days
c. 90 days
Which of the following would be considered an interim loan? a. Automobile loan b. Residential mortgage loan c. Construction loan d. Home equity loan e. Student loan
c. Construction loan
Which of the following refers to a lender's tendency to ignore circumstances in which a loan might default? a. Complacency b. Contention c. Contingencies d. Competition e. Carelessness
c. Contingencies
Loan covenants: a. protect the borrower from lender interference in management. b. are limited to "negative" provisions. c. may limit discretionary cash outlays by firms. d. are seldom enforced. e. often result in the lender's bankruptcy.
c. may limit discretionary cash outlays by firms.
A loan where the entire principal is due at maturity is called a: a. installment loan. b. sinking fund loan. c. mezzanine loan. d. bullet loan. e. highly leverage transaction loan.
d. bullet loan.
The vast majority of FDIC-insured institutions are classified as: a. credit card banks. b. agricultural banks. c. consumer lenders. d. commercial lenders. e. mortgage lenders.
d. commercial lenders.
Loans that finance the construction of roads and public utilities in new subdivisions are labeled: a. public work loans. b. take-out loans. c. domestic loans. d. land development loans. e. working capital loans.
d. land development loans.
When a bank's claim to collateral is superior to all other creditors, the claim is said to be: a. developed. b. guaranteed. c. certified. d. perfected. e. endorsed.
d. perfected.
Large firms can obtain funds from which of the following? a. Equity financing b. Issuing commercial paper c. Issuing long-term bonds d. Loans from commercial banks e. All of the above
e. All of the above
Which of the following would be considered a "negative" loan covenant? a. The firm's current ratio cannot fall below 2.0 b. All property must be maintained in good condition c. The firm's net worth must exceed $10,000,000 d. The firm must carry property insurance on all collateral. e. Cash dividends cannot exceed 50% of earnings.
e. Cash dividends cannot exceed 50% of earnings.
Which of the following is not one of the five Cs of (good) credit? a. Character b. Collateral c. Capital d. Capacity e. Communication
e. Communication
Positive working capital for a firm implies: a. the firm has no short-term debt. b. the firm has no seasonal cash flow needs. c. that current assets are completely financed by current liabilities. d. the firm has no long-term debt. e. that current assets are partially financed by long-term debt and equity.
e. that current assets are partially financed by long-term debt and equity.