FIN625 midterm past papers

Download FIN625 mid term 1.pdf FIN625 midterm past papers FIN625 - Credit & Risk Management Download FIN625 mid term 1.pdf FIN625 midterm past papers FIN625 - Credit & Risk Management
Download FIN625 mid term 1.pdf FIN625 midterm past papers FIN625 - Credit & Risk Management Download FIN625 mid term 1.pdf FIN625 midterm past papers FIN625 - Credit & Risk Management
Download FIN625 mid term 1.pdf FIN625 midterm past papers FIN625 - Credit & Risk Management Download FIN625 mid term 1.pdf FIN625 midterm past papers FIN625 - Credit & Risk Management
Download FIN625 mid term 1.pdf FIN625 midterm past papers FIN625 - Credit & Risk Management Download FIN625 mid term 1.pdf FIN625 midterm past papers FIN625 - Credit & Risk Management
Download FIN625 mid term 1.pdf FIN625 midterm past papers FIN625 - Credit & Risk Management Download FIN625 mid term 1.pdf FIN625 midterm past papers FIN625 - Credit & Risk Management

Which of the following is TRUE regarding the Credit Information Bureau (CIB)?

It is a department of Federal Reserve of USA

It is a private rating agency of Columbia

It is a public sector credit bureau of Pakistan

It is a private enterprise in Africa

LECTURE – 04

The Credit Information Bureau (CIB) is a public sector credit bureau of Pakistan.

Which of the following strategies should reflect the bank’s tolerance for risk and level of profitability, the bank expects to achieve for incurring various credit risks?

The intensive strategy

The integration strategy

The credit risk strategy

The diversification strategy

LECTURE – 05

The board of directors should have responsibility for approving and periodically reviewing the credit risk strategy and significant credit risk policies of the bank. The strategy should reflect the bank’s tolerance for risk and the level of profitability the bank expects to achieve for incurring various credit risks.

Which of the following statements is TRUE for exposure limits?

It is a statistical method of assessing the credit risk of a loan applicant

It is an individual’s payment history that is supplied by a Credit Bureau

It ensures that the bank’s credit-granting activities are adequately diversified

It is the risk that counter-party may not meet one’s obligation in a contract

LECTURE – 08

Limits should also be established for particular industries or economic sectors, geographic regions and specific products. Such limits are needed in all areas of the bank’s activities that involve credit risk. These limits will help to ensure that the bank’s credit-granting activities are adequately diversified.

Which of the following organizations often determines the process design in the risk analysis units?

Operational organization

Sales organization

Production organization

Learning organization

LECTURE – 13

The sales organization often determines the process design in the risk analysis units.

All of the following are synonyms for adverse credit history, EXCEPT:

Poor credit history

Non-status credit history

Impaired credit history

First-rate credit history

LECTURE – 03

Adverse credit history also called sub-prime credit history, non-status credit history, impaired credit history, poor credit history, and bad credit history, is a negative credit rating.

Which of the following is an important way to reduce credit risks, especially in Inter-bank transaction?

Netting agreements

Workplace agreements

Interagency agreements

Option agreements

LECTURE – 07

Netting agreements are an important way to reduce credit risks, especially in Inter-bank transactions.

Which of the following exposures include margin and collateral agreements with periodic margin calls, liquidity back-up lines, commitments and some letters of credit, and some unwind provisions of securitizations?

Liquidity sensitive

Profitability sensitive

Market sensitive

Debt sensitive

LECTURE – 12

Liquidity-sensitive exposures include margin and collateral agreements with periodic margin calls, liquidity back-up lines, commitments and some letters of credit, and some unwind provisions of securitizations.

Which of the following is the process of assessing risks and taking steps to either eliminate or to reduce them (as far as is reasonably practicable) by introducing control measures?

Strategic management

Operations management

Risk management

Credit management

Risk management is the process of assessing risks and taking steps to either eliminate or to reduce them by introducing control measures. Its purpose is to generate ideas and promote good practice for those involved in the business of risk management.

Which of the following risks focuses more specifically on a borrower’s capacity to obtain the foreign exchange necessary to service its cross-border debt and other contractual obligations?

Credit or default risk

Transfer risk

Country or sovereign risk

Systematic risk

LECTURE – 07

Transfer risk focuses more specifically on a borrower’s capacity to obtain the foreign exchange necessary to service its cross-border debt and other contractual obligations.

Which of the following exposures include foreign exchange and financial derivative contracts?

Liquidity sensitive

Profitability sensitive

Market sensitive

Debt sensitive

LECTURE – 12

Market-sensitive exposures include foreign exchange and financial derivative contracts.

To maximize a bank’s risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters is the goal of which of the following?

Operational risk management

Credit risk management

Commodity risk management

Quantitative risk management

LECTURE – 05

The goal of credit risk management is to maximize a bank’s risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters.

Which of the following audits should also be used to identify areas of weakness in the credit administration process, policies and procedures as well as any exceptions to policies, procedures and limits?

External audits of the credit risk

Internal audits of the credit risk

Financial audits of the credit risk

Performance audits of the credit risk

LECTURE – 11

Internal audits of the credit risk processes should be conducted on a periodic basis to determine that credit activities are in compliance with the bank’s credit policies and procedures, that credits are authorized within the guidelines established by the bank’s board of directors and that the existence, quality and value of individual credits are accurately being reported to senior management.

Who, among the following, should take particular note of whether bank management recognizes problem credits at an early stage and takes the appropriate actions?

Top level managers

Low level managers

Middle level managers

Supervisors

LECTURE – 11

Supervisors should take particular note of whether bank management recognises problem credits at an early stage and takes the appropriate actions.

Which of the following statements is TRUE for credit administration?

It is a statistical method of assessing the credit risk of a loan applicant

It is a critical element in maintaining the safety and soundness of a bank

It ensure that the bank’s credit-granting activities are adequately diversified

It is the risk that counter-party may not meet one’s obligation in a contract

LECTURE – 09

Credit administration is a critical element in maintaining the safety and soundness of a bank.

Which of the following instruments are viewed as relatively sophisticated instruments, requiring some effort by both the bank and the customer to ensure that the contract is well understood by the customer?

Derivative function

Financial derivative

Linear derivative

Non-linear derivative

LECTURE – 12

Most market-sensitive instruments, such as financial derivatives, are viewed as relatively sophisticated instruments, requiring some effort by both the bank and the customer to ensure that the contract is well understood by the customer.

Question # 1 of 15

The level of exposure has an immediate impact on which of the following?

Loss given default

Probability of default

Exposure at default

Maturity

LECTURE – 14

The level of exposure has an immediate impact on the exposure at default (EAD).

Question # 2 of 15

Which of the following should ensure that granting of credit exceeding certain predetermined levels receive prompt management attention?

Multi-user systems

Limit systems

Drain back systems

Embedded systems

LECTURE – 11

Limit systems should ensure that granting of credit exceeding certain predetermined levels receive prompt management attention.

Question # 3 of 15

Which of the following strategies should reflect the bank’s tolerance for risk and level of profitability, the bank expects to achieve for incurring various credit risks?

The intensive strategy

The integration strategy

The credit risk strategy

The diversification strategy

LECTURE – 05

The board of directors should have responsibility for approving and periodically reviewing the credit risk strategy and significant credit risk policies of the bank. The strategy should reflect the bank’s tolerance for risk and the level of profitability the bank expects to achieve for incurring various credit risks.

Question # 4 of 15

Which of the following statements is TRUE for exposure limits?

It is a statistical method of assessing the credit risk of a loan applicant

It is an individual’s payment history that is supplied by a Credit Bureau

It ensures that the bank’s credit-granting activities are adequately diversified

It is the risk that counter-party may not meet one’s obligation in a contract

LECTURE – 08

Limits should also be established for particular industries or economic sectors, geographic regions and specific products. Such limits are needed in all areas of the bank’s activities that involve credit risk. These limits will help to ensure that the bank’s credit-granting activities are adequately diversified.

Question # 5 of 15

The introduction of mostly automated credit decisions particularly entails a considerable change in the user interface in which of the following applications?

Operations

Sales

Productions

Quality

LECTURE – 15

Changes in processes, in particular the introduction of mostly automated credit decisions, entail a considerable change in the user interface in sales applications.

Question # 6 of 15

The ways through which banks avoid association with individuals involved in fraudulent activities and other crimes include all of the following, EXCEPT:

They ask for references from known parties

They access credit registries

They keep the individuals responsible for managing a company at distance

They check their personal references and financial condition

LECTURE – 07

In particular, strict policies must be in place to avoid association with individuals involved in fraudulent activities and other crimes. This can be achieved through a number of ways, including asking for references from known parties, accessing credit registries, and becoming familiar with individuals responsible for managing a company and checking their personal references and financial condition.

Question # 7 of 15

Which of the following is the one way for a bank to deal with credit risk?

Charge all borrowers from the same industry an average rate or interest for that industry

Avoid making loans to borrowers from a broad spectrum and to specialize geographically and in specific industries

Add a mark-up to the cost of funds for a specific borrower based on the borrower’s credit history

All loans within the conforming loan limit at the time of origination will continue to be deemed

Ref:

All loans that were within the conforming loan limit at the time of origination will continue to be deemed within the conforming loan limit during the remaining lives of such loans, regardless of whether the loan limit for any subsequent year declines to a level below the limit at the time of origination.

Question # 8 of 15

Which of the following is affected by the collateralized portion as well as the cost of selling the collateral?

Loss given default

Probability of default

Exposure at default

Maturity

LECTURE – 13

The loss given default is affected by the collateralized portion as well as the cost of selling the collateral.

Question # 9 of 15

Which of the following statements is TRUE for credit administration?

It is a statistical method of assessing the credit risk of a loan applicant

It is a critical element in maintaining the safety and soundness of a bank

It ensure that the bank’s credit-granting activities are adequately diversified

It is the risk that counter-party may not meet one’s obligation in a contract

LECTURE – 09

Credit administration is a critical element in maintaining the safety and soundness of a bank.

Question # 10 of 15

How many approaches do Basel II provide to determine the capital requirement?

Five

Four

Three

Two

LECTURE – 14

Basel II provides two approaches to determine the capital requirement:

1. A standardized approach and

2. An internal ratings-based approach (IRB approach).

Question # 11 of 15

Which of the following exposures include margin and collateral agreements with periodic margin calls, liquidity back-up lines, commitments and some letters of credit, and some unwind provisions of securitizations?

Liquidity sensitive

Profitability sensitive

Market sensitive

Debt sensitive

LECTURE – 12

Liquidity-sensitive exposures include margin and collateral agreements with periodic margin calls, liquidity back-up lines, commitments and some letters of credit, and some unwind provisions of securitizations.

Question # 12 of 15

Which of the following terms is also called credit history or credit score?

Credit reputation

Credit risk

Credit repair

Credit union

LECTURE – 03

The term “credit reputation” can either be used synonymous to credit history or to credit score.

Question # 13 of 15

How many factors should be taken into account in the segmentation of credit approval processes?

Three

Four

Five

Six

LECTURE – 13

Thus, four factors should be taken into account in the segmentation of credit approval processes:

1. Type of borrower

2. Source of cash flows

3. Value and type of collateral

4. Amount and type of claim

Question # 14 of 15

Which of the following risks encompasses the entire spectrum of risks arising from the economic, political and social environments of a foreign country that may have potential consequences for foreigners’ debt and equity investments in that country?

Credit or default risk

Transfer risk

Systematic risk

Country or sovereign risk

LECTURE – 07

Country or sovereign risk encompasses the entire spectrum of risks arising from the economic, political and social environments of a foreign country that may have potential consequences for foreigners’ debt and equity investments in that country.

Question # 15 of 15

Which of the following policies reward unacceptable behavior such as generating short-term profits while deviating from credit policies or exceeding established limits, weaken the bank’s credit processes?

Constituent policies

Regulatory policies

Remuneration policies

Distributive policies

LECTURE – 06

Remuneration policies that reward unacceptable behavior such as generating short-term profits while deviating from credit policies or exceeding established limits, weaken the bank’s credit processes.

Question # 1 of 15

Banks have new possibilities to manage credit concentrations and other portfolio issues including all of the following mechanisms EXCEPT:

Loan sales

Credit derivatives

Securitization programs

Primary loan markets

LECTURE – 10

Banks have new possibilities to manage credit concentrations and other portfolio issues. These include such mechanisms as loan sales, credit derivatives, securitization programs and other secondary loan markets.

Question # 2 of 15

As part of their ongoing activities, whose responsibility is to assess the system in place at individual bank to identify, measure, monitor and control credit risk?

Top level managers

Low level managers

Middle level managers

Supervisors

LECTURE – 11

Supervisors should require that banks have an effective system in place to identify, measure, monitor and control credit risk as part of an overall approach to risk management.

Question # 3 of 15

Which of the following is TRUE for potential future exposures?

These should be calculated over multiple space horizons

These should be calculated over single time horizon

These should be calculated over single space horizon

These should be calculated over multiple time horizons

LECTURE – 08

Potential future exposures should therefore be calculated over multiple time horizons.

Question # 4 of 15

Which of the following components is NOT associated to financial risks?

Profitability

Capital expenditure

Liquidity

People management

Question # 5 of 15

The level of exposure has an immediate impact on which of the following?

Loss given default

Probability of default

Exposure at default

Maturity

LECTURE – 14

The level of exposure has an immediate impact on the exposure at default (EAD).

Question # 6 of 15

Which of the following is a statistical method of assessing the credit risk of a loan applicant?

Identity score

Ipsative score

Standard score

Credit score

Ref:

Credit scoring, also known as FICO scoring, is a statistical method of assessing the credit risk of a loan applicant.

Question # 7 of 15

Which of the following holds your credit history, such as your first bank account, any credit cards you have, or any applications for finance you may have made?

The Treasury Bureau

Bureau of Administration

Credit Reference Agency

Bureau of Diplomatic Security

LECTURE – 02

A credit bureau (U.S.) or credit reference agency (UK) is a company that provides consumer credit information on individual borrowers.

Question # 8 of 15

Loans to certain industry sectors, asset securitization, customer-written options, credit derivatives, credit-linked notes, are examples of which of the following?

Simple credit-granting activities

Complex credit-granting activities

Unchallenging credit-granting activities

Standard credit-granting activities

LECTURE – 07

Banks must develop a clear understanding of the credit risks involved in more complex credit-granting activities (for example, loans to certain industry sectors, asset securitization, customer-written options, credit derivatives, credit-linked notes).

Question # 9 of 15

How many approaches do Basel II provide to determine the capital requirement?

Five

Four

Three

Two

LECTURE – 14

Basel II provides two approaches to determine the capital requirement:

1. A standardized approach and

2. An internal ratings-based approach (IRB approach).

Question # 10 of 15

Who, among the following, should also consider the relationships between credit risk and other risks?

Agents

Banks

Partners

Government

LECTURE – 05

Banks should also consider the relationships between credit risk and other risks.

Question # 11 of 15

Which of the following exposures include foreign exchange and financial derivative contracts?

Liquidity sensitive

Profitability sensitive

Market sensitive

Debt sensitive

LECTURE – 12

Market-sensitive exposures include foreign exchange and financial derivative contracts.

Question # 12 of 15

Which of the following is the one way for a bank to deal with credit risk?

Charge all borrowers from the same industry an average rate or interest for that industry

Avoid making loans to borrowers from a broad spectrum and to specialize geographically and in specific industries

Add a mark-up to the cost of funds for a specific borrower based on the borrower’s credit history

All loans within the conforming loan limit at the time of origination will continue to be deemed

Ref:

All loans that were within the conforming loan limit at the time of origination will continue to be deemed within the conforming loan limit during the remaining lives of such loans, regardless of whether the loan limit for any subsequent year declines to a level below the limit at the time of origination.

Question # 13 of 15

Which of the following risks encompasses the entire spectrum of risks arising from the economic, political and social environments of a foreign country that may have potential consequences for foreigners’ debt and equity investments in that country?

Credit or default risk

Transfer risk

Systematic risk

Country or sovereign risk

LECTURE – 07

Country or sovereign risk encompasses the entire spectrum of risks arising from the economic, political and social environments of a foreign country that may have potential consequences for foreigners’ debt and equity investments in that country.

Question # 14 of 15

Which of the following statements is TRUE for exposure limits?

It is a statistical method of assessing the credit risk of a loan applicant

It is an individual’s payment history that is supplied by a Credit Bureau

It ensures that the bank’s credit-granting activities are adequately diversified

It is the risk that counter-party may not meet one’s obligation in a contract

LECTURE – 08

Limits should also be established for particular industries or economic sectors, geographic regions and specific products. Such limits are needed in all areas of the bank’s activities that involve credit risk. These limits will help to ensure that the bank’s credit-granting activities are adequately diversified.

Question # 15 of 15

Which of the following is an important way to reduce credit risks, especially in Inter-bank transaction?

Netting agreements

Workplace agreements

Interagency agreements

Option agreements

LECTURE – 07

Netting agreements are an important way to reduce credit risks, especially in Inter-bank transactions.

Question # 1 of 15

Which of the following components is NOT associated to financial risks?

Profitability

Capital expenditure

Liquidity

People management

Question # 2 of 15

Which of the following policies reward unacceptable behavior such as generating short-term profits while deviating from credit policies or exceeding established limits, weaken the bank’s credit processes?

Constituent policies

Regulatory policies

Remuneration policies

Distributive policies

LECTURE – 06

Remuneration policies that reward unacceptable behavior such as generating short-term profits while deviating from credit policies or exceeding established limits, weaken the bank’s credit processes.

Question # 3 of 15

Which of the following is legally empowered to collect credit information?

Government of Pakistan

Institute of Bankers Pakistan

Credit Information Bureau

Central Board of Revenue, Pakistan

LECTURE – 04

The CIB is legally empowered to collect credit information. The member financial institutions are bound to share their credit information with the CIB.

Question # 4 of 15

Claims on individuals belong to which of the following portfolios?

Investment

Retail

Project

Market

LECTURE – 14

Claims on individuals belong to the retail portfolio.

Question # 5 of 15

The organizational structure of risk analysis is usually based on a five-level organizational model. Which of the following is NOT a level in this model?

Division manager

Associates

Group leader

Specialists

Ref:

The organizational structure of risk analysis is usually based on a five-level organizational model 60

Level 1 executive (chief risk officer)

Level 2 division manager

Level 3 head of department (HD)

Level 4 group leader (GL)

Level 5 specialists Risk.

Question # 6 of 15

Which of the following requires the assessment of the borrower’s credit standing?

Credit approval process

Management

Basel II

Government

LECTURE – 15

Basel II requires the assessment of the borrower’s credit standing.

Question # 7 of 15

Which of the following is the credit rating of a self-governing entity, i.e. a country?

Consumer credit rating

Sovereign credit rating

Corporate credit rating

Personal credit rating

LECTURE – 04

A sovereign credit rating is the credit rating of a sovereign entity, i.e. a country.

Question # 8 of 15

Which of the following can result from an incorrect performance of the credit approval process?

Substantive errors

Procedural errors

Cognitive errors

Non-cognitive errors

LECTURE – 12

Procedural errors can result from an incorrect performance of the credit approval process.

Question # 9 of 15

Which of the following risks encompasses the entire spectrum of risks arising from the economic, political and social environments of a foreign country that may have potential consequences for foreigners’ debt and equity investments in that country?

Credit or default risk

Transfer risk

Systematic risk

Country or sovereign risk

LECTURE – 07

Country or sovereign risk encompasses the entire spectrum of risks arising from the economic, political and social environments of a foreign country that may have potential consequences for foreigners’ debt and equity investments in that country.

Question # 10 of 15

How many approaches do Basel II provide to determine the capital requirement?

Five

Four

Three

Two

LECTURE – 14

Basel II provides two approaches to determine the capital requirement:

1. A standardized approach and

2. An internal ratings-based approach (IRB approach).

Question # 11 of 15

All of the following are the major causes of serious banking problems, EXCEPT:

Lax credit standards for borrowers

Lax credit standards for counterparties

Poor portfolio risk management

Having attention to varying economic circumstances

LECTURE – 05

The major cause of serious banking problems continues to be directly related to lax credit standards for borrowers and counterparties, poor portfolio risk management, or a lack of attention to changes in economic or other circumstances that can lead to deterioration in the credit standing of a bank’s counterparties.

Question # 12 of 15

The level of risk is determined by the particular arrangements for settlement. All of the following are the factors included in such arrangements that have a bearing on credit risk EXCEPT:

The timing of the exchange of value

The payment/settlement finality

The role of intermediaries and clearing houses

Spontaneous foreign investment

LECTURE – 05

The level of risk is determined by the particular arrangements for settlement. Factors in such arrangements that have a bearing on credit risk include: the timing of the exchange of value; payment/settlement finality; and the role of intermediaries and clearing houses.

Question # 13 of 15

Which of the following statements is TRUE for risk?

It is a venture undertaken without regard to possible loss or injury

It is the state of being certain that adverse effects will not be caused

It is conformance to the degree of excellence of a product or service

It is the perfect knowledge that has complete security from errors

Ref:

Risk, peril, danger: a venture undertaken without regard to possible loss or injury.

Question # 14 of 15

The level of exposure has an immediate impact on which of the following?

Loss given default

Probability of default

Exposure at default

Maturity

LECTURE – 14

The level of exposure has an immediate impact on the exposure at default (EAD).

Question # 15 of 15

Which of the following is the first step in the risk management process?

Select the appropriate techniques for handling losses

Identify potential losses

Implement and administer the program

Evaluate potential losses

Risk Management Process

  • Identify potential losses
  • Evaluate potential losses
  • Select the appropriate risk management technique
  • Implement and monitor the risk management program.

Responses