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