ch.10

1. A borrower's ability to repay a debt is known as which of the 5 C's of credit analysis?

Capacity

The legal authority to sign a binding loan contract and the adequacy of the borrower's cash flow available to service the loan falls under which one of the 5 C's of credit analysis?

Capacity

Which of the five Cs in credit analysis require the legal and economic information of the person?

Capacity

___ The amount of money invested by the business owner or management team

Capital

The assessment of the seriousness of the borrower's intent to repay the loan falls under which one of the 5 C's of credit analysis

Character

When lenders examine one's individuality such as their lifestyle,morals and overall way they present themselves, they are using which factor?

Character

1. Define, explain, and give examples of the 5 C's of credit analysis.

Character- The borrower's character is defined by their general trustworthiness, credibility, and general personality. A borrower who consistently misses payments or may have malicious intentions will not have good character and exhibits red flags. One example of this is a borrower who has defaulted from multiple past loans. Capital- The borrower's capital is defined by the amount of assets and debts they have in their portfolio. A borrower with a lot of capital and few other debts will be favorable for a loan. An example of this is someone with an already established and profitable business applying for a loan versus someone out of college with no job and thousands of dollars in student debt. Capacity: The borrower's capacity is defined by their ability to pay off a loan. A borrower with high amounts of cash flows who spends very little will be far more favorable than someone with very little income who spends far more than they can afford. Collateral: The borrower's collateral is defined by the asset owned that can be used as secondary sources of repayment. A borrower with many assets, such as real estate or machinery, that can be used as collateral in case they fail to be able to repay the debt is far more favorable than someone with no assets to their name. Condition: The borrower's condition is defined as the current state of their business, the industry, and the overall economy. A borrower whose business is booming in an industry that is rising while the economy is doing well will be more favorable than a borrower whose business is not doing well in a declining industry while the economy is in a recession.

Which of the following is not true about the Four Cs of Credit Analysis

Character: refers poor staff

Credit analysis is mostly standard for which financial institution

Commercial banks

2. Define, explain, and give examples of credit analysis

Credit analysis is a type of analysis that an investor or bond portfolio manager performs on companies or other debt issuing entities to measure the entity's ability to meet its debt obligations. The analysis goes through many different steps and processes to determine if the entity is worthy of a loan and capable of repaying it. Some of these steps include a financial inspection of the entity, a review of its market, analysis of various parameters, such as their industry and the overall economy, a credit rating, and establishing the terms and conditions of the loan. An example of a credit analysis is the type a company goes through when they request a loan in order to purchase equipment needed to operate or the type an individual will go through when applying for a loan to purchase a home or vehicle.

- Define, explain and give examples of credit analysis.

Credit analysis is the process where a lender determines a borrower's ability and willingness to repay a loan in accordance with the terms of the contract. Methods are used to do the process via information supplied by the borrower or financial institution. An example of a method used to evaluate someone's worthiness is the 5 C's.

Define Credit risk

Credit risk is the risk that the borrower will not make full and timely payments. The two components of credit risk are default probability and loss severity.

Which is NOT a stage of credit analysis?

Criminal Records

Describe the Herstatt Risk

Cross-currency settlement risk that arises where the working hours of inter-bank fund transfer systems do not overlap due to time zone differences. In this situation, failure by one counterparty to settle its side of the deal starts a chain reaction of cross-defaults. It is named after a small German bank (Bankhaus Herstatt) which failed in June 1974 during the period it was supposed to settle a contract after having received the payment from the counterparty. That failure caused a string of cascading defaults in a rapid sequence, totaling a loss of $620 million to the international banking sector.

Which one of the following is the meaning of First lien debt

Debt secured by a pledge of certain assets that could include buildings, but may also include property and equipment, licenses, patents, brands, etc.

Explain the meaning of First lien debt

Debt secured by a pledge of certain assets that could include buildings, but may also include property and equipment, licenses, patents, brands, etc.

- Poland is experiencing a shortage in prescription medicine, which of the following is one of the illnesses that pharmacies are lacking medicine for.

Diabetes

. Forst Lien debt is the risk that the borrower will not make full and timely payments

False

2. Cooperation is one of the five elements of credit analysis

False

Capacity refers to the borrower's amount of assets and debts and how they utilize them

False

Item by Item evaluation DOES identify key relationships between accounts or groups of accounts.

False

One of the less needful pieces of information for credit analysis is evaluation of assets

False

What does collateral mean?

Having a backup source to pay debt, in case payments can't be made

Define, explain, and give an example of Credit Analysis

It is a process in which a lender determine the borrow ability and willingness to repay the loan requested. It has additional dimensions by evaluating the country and by-taking in consideration the risk associate with the foreign exchange. The method used for credit analysis is mostly standard in commercial bank, the difference are established by the person who perform the credit analysis(the loan officer).

6. Define, explain, and give examples of how cash flow is another technique of the value to the lending officer in their credit analysis

The lending officer must not imagine the income coming straight from a sale, but the lending officer must take into account of the of debt, and expenses, thus they must look into future income for debt retirement.

Define, explain, and give an example of character

The loan office must look for signs of Integrity and honesty. Oftentimes bad things happen to good people - unpaid collections, foreclosures, bankruptcies, and late payments are all red flags.

3. The income statement identifies the sources of revenue of a prospective borrower, the expenses sustained to earn that revenue, and...

The net income realized in the accounting period involved

A lending officer has to be familiar with the differences in legal, tax, accounting, and financing practices and standards of foreign countries.

True

An issue that banks face when evaluating financial statements from businesses of different countries is that they use different accounting standards

True

Character, Capacity, Capital, Collateral and Condition are the 5 important factors in credit analysis.

True

Credit Analysis is the process in which a lender determine a borrow ability and willingness to repay.

True

Market liquidity risk is the risk that the price at which investors can actually transact—buying or selling—may differ from the price indicated in the market.

True

The role of the Basel Accord is to enact supervisory guidelines and make recommendations for maintaining the capital adequacy requirement for all central bankers.

True

2. Will there be an economic recession in the coming years.

a. According to financial executives, they believe there will be a recession soon, but they do not know when. All signs have pointed towards a recession, but they cannot give an accurate prediction as to when though.

What has Trump's trade war with China done to the global economy?

a. President Trump's trade war with China could end up slowing down the global economy, according to experts. Many countries such as Germany have suffered because of the trade war.

During mid September 2019, the US central bank put more than $200bn into the financial system. When was the last time the Central Bank had made such an intervention?

2008

5. Define, explain, and give examples of what a country needs to meet debt servicing.

A country needs to be able to control the availability or cost of foreign exchange. The exports, and foreign exchange revenues need to be promoted. Being stricter on imports, to preserve foreign exchange. Encourage a net inflow of capital. Draw its on official reserves. Borrow from other sources, and obtaining foreign aid.

What are the various sources used to properly analyze credit risk for corporations?

As public companies have set standards for reporting their financial information, their credit risk can be properly viewed and analyzed. One can evaluate their assets and how they manage and earn profits on them. This can then lead an analyst to look at the remaining balance sheet items such as liabilities and shareholder's equity. Additionally, other statements that can be viewed as sources of credit include the Income Statements and Cash Flow Statements.

1. The Accord Agreement and its Committee, which is responsible for implementation of the Accord, operate in the town of _______ ?

Basel in Switzerland

Which is not one of the 5 C's of credit

Calvary

What countries were involved in the Herstatt Risk case?

US and Germany

What is the biggest issue to foreign credit lending analysis?

US dollars translated into foreign currency will misrepresent results

The International Monetary Fund (IMF) also provides guidelines for central bankers to follow in order to direct the licensing and operation of the banking system.

True

The objective of credit analysis is the function to evaluate the certain risk involved lending out a loan to a borrower and the amount of credit needed.

True

During the week of October 3rd, 2019, the euro sank to the lowest it has been since May 2017. How low did the Euro fall during that week?

$1.09

True or False. Conditions is one of the Five "C's" of Credit.

True

From a legal perspective, lenders focus on whether the person requesting the loan can legally obligate itself to borrow contractually.

True

Describe the Security Act of 1933

It is focused on " truth in new issues," requiring prospectuses and creating underwriting liabilities to be shared by both companies and their investment bankers. Two basic objectives: require that investors receive financial and other significant information concerning securities being offered for public sale; and. To prohibit deceit, misrepresentations, and other fraud in the sale of securities.

Which of the major cities is not experiencing a shrink in their population of young adults for its fourth consecutive year.

Miami

4. When considering net profit, or loss in taxes many companies frequently use _______ to reduce their overall tax exposure

Safe Havens

Define, explain and give examples of the 5 important credit analysis factors.

The 5-importance credit analysis area Capital, Capacity, collateral, conditions and character. These are factors used to evaluate someone's loan request by lenders. They serve to protect lenders from risk and maximize profit. Character is the examination of one's individual profile such as lifestyle, morals and background

What is the first of the Five C's of credit and what does it encompass?

The first of the Five C's is character. It is the starting point in analyzing credit because it studies a person or company's integrity and honestly. It shows whether or not the subject has a history of being truthful with its finances and can be relied on do right on its debt obligations.

2. What caused the Hersatt or Settlement Risk?

Time Zone difference