Question (1)

What year-over-year change in gross margin represents positive financial risk?

No change represents stability.

Gross margin does not affect risk.

A decrease represents profit growth.

An increase represents profit growth.

Question (2)
Which is a major risk for a business in the mature stage of its life cycle?

Failure to repay debt.

Filing for bankruptcy.

Merger with a competitor.

Inability to invest in new products.

Question (3)
Which company related issue can result in a problem loan?

Deregulation.

Globalisation.

Illiquidity.

Seasonality.

Question (4)
Which figure is likely to increase for a business after a seasonal peak sales period?

Sales.

Inventory.

Trade payables.

Trade receivables.

Question (5)
What is a generally acceptable gearing ratio for a business in India?

1.00
2.00
3.00
4.00
Question (6)
Which is a long-term source of working capital financing?

Accrued expenses.

Customer advances.

Term loans.

Trade payables.

Question (7)
What does the trade receivables days ratio measure?

Actual time it takes to pay suppliers.

Average time it takes to pay suppliers.

Actual time it takes to collect cash from customers.

Average time it takes to collect cash from customers.

Question (8)
What projected information is best to use to assess working capital limits?

Sales.

Balance sheet.

Labour expenses.

Profit and loss statement.

Question (9)
On what basis is the risk premium for a loan calculated?

Expected loss.

Loss given default.

Exposure at default.

Probability of default.

Question (10)
Which industry factor increases the need for a company to compete for a high volume of sales
to remain profitable?

High fixed costs.

Few competitors.
High switching costs.

Rapid demand growth.

Question (11)
Which source of external information can help a relationship manager identify changes that
might affect the outlook for a borrower’s industry?

Credit bureau reports.

Stock market announcements.

Reports of parties that have defaulted.

Government announcements of new or amended regulations.

Question (12)
What is a sign of incipient stress which may result in an account being classified as Special
Mention Account (SMA) under the SMA-0 sub-category?

Delay of 30 days in submission of stock statements.

Decrease in frequency of overdrafts in current accounts.

Actual sales and operating profits falling short of projections accepted for loan sanction by 20%.

Return of three cheques issued by borrowers in 30 days on grounds of non-availability of

balance.

Question (13)
Which is an appropriate source of capital investment financing?

Line of credit.

Letter of credit.

Government grant.

Working capital loan.

Question (14)
What is the best time to pay a creditor to optimise cash flow?

Immediately.

On the due date.

30-60 days after the due date.

60-90 days after the due date.

Question (15)
Which statement is correct regarding the effect of a debit or credit on the particular type of
financial account?

A credit to an asset account increases it.

A debit to a liability account decreases it.

A debit to a revenue account increases it.

A credit to an equity account decreases it.

Question (16)
What is drawing power?
.
The approved fund-based working capital limit to finance a company’s inventory and
receivables.

The value of eligible inventory and receivables detailed in a company’s latest stock statement
that can be drawn against.

A company’s credit limit based on the value of eligible items from its latest stock statement
multiplied by the agreed margin.

The lower of a company’s approved fund-based working capital limit and the lending value
calculated based on its latest stock statement and usance letters of credit issued.

Question (17)
What is the order of quality of financial statements from lowest to highest?

Audited, reviewed, positive assurance, prepared.

Positive assurance, prepared, reviewed, audited.

Prepared, reviewed, audited, positive assurance.

Reviewed, positive assurance, prepared, audited

Question (18)
What term refers to the amount that a lender expects to be outstanding at the time of default?

Expected default loss.

Exposure at default.

Loss given default.

Probability of default.
Question (19)
Which is a negative effect of sales fluctuations for seasonal businesses?

Falling sale prices.

Increased inventories.

Incapacity to compete.

Inability to repay loans.

Question (20)
What three categories are cash payments classified by in the statement of cash flows?

Direct, indirect and Uniform Credit Analysis.

Cash receipts, cash payments and capital expenditures.

Operating activities, investing activities and financing activities.

Operating activities, management activities and financing activities.

Question (21)
What information should be reviewed in the periodic progress reports on implementation of a
project to assess likelihood of meeting the loan repayment obligations?

The project implementation is on schedule.

Funding is available to cover any cost overruns.

There are orders for the project outputs once completed.

Project reports have been approved by the lender’s engineer

Question (22)
What information must be collected and analysed before a personal guarantee on a loan can be
accepted?

Evidence that the guarantor has a higher net worth than the borrower.

Proof that the guarantor is employed showing the gross and net pay received.

Confirmation that the guarantor has no other outstanding guarantees.

The amount of the guarantor’s obligations to banks, including pending loan applications.

Question (23)
Under what circumstances might weak succession planning affect a borrower’s credit risk when
a key management member leaves unexpectedly?
The nominated successor lacks management integrity.

The nominated successor has not completed all required training.

The nominated successor cannot take up the position for a few weeks.

Details of the nominated successor were not provided to the borrower’s bank.

Question (24)
What activity would provide the least useful information when conducting an inspection?

Holding discussions with the borrower.

Assessing the borrower’s activity level.

Establishing the existence of borrower’s capital stock.

Updating the Bank’s existing knowledge about the borrower’s operations.

Question (25)
What are the three key reference points that form the foundation of most projections?

Start-up, expansion, and succession.

Inventory, sales growth, and rate of return.

Liquidity, profitability, and capital expenditures.

Past results, management plans, and economic environments.

Question (26)
What type of credit facility will typically have a lower interest rate?

Fund-based.

Non-fund-based.

Secured.

Unsecured.

Question (27)
What would allow a positive view to be taken of management‘s ability to develop a robust and
implementable business plan?

Plans are developed in a top-down manner.

There is a well-defined and balanced planning process.

Corrective actions are taken quickly where targets are not being met.

Plans are communicated to all relevant parties within the first month of the new financial year.
Question (28)
What can be reasonably assumed when a business’s debt to tangible worth ratio is higher than
1.00?

Gearing is low.

Financial risk is unfavourable.

Creditors support assets more than the owners.

The owners support assets more than creditors.

Question (29)
Which can occur as a result of including a group cross-default covenant in the credit agreement
that involves a loan guarantor?

The guarantor is protected if the borrower defaults.

The borrower is protected if the guarantor defaults.

Allows action if the borrower and guarantor default.

Allows action against the borrower if the guarantor defaults.

Question (30)
Which is considered a financing activity when using the indirect method of structuring a cash
flow statement?

Purchases of fixed assets.

Long-term loans and advances.

Proceeds from sale of fixed assets.

Proceeds from sale of share capital.

Question: 31.
What would describe a non-fund-based facility?

A facility that is lower risk than a fund-based facility.

A credit facility that incurs a monetary obligation when draw down occurs.

A facility that is similar to a fund-based facility in terms of how it is recorded in a bank’s books.

A facility that may result in a funded obligation if the customer fails to settle any payments due

Question (32)
Which is the most effective type of covenant in a credit agreement?
Balance sheet.

Cash flow.

Event-based.

Non-financial.

Question (33)
Which existing market condition can act as a key barrier to entry for a business that wants to
expand into a new market?

Slow market growth.

Product standardisation.

Expensive local manpower.

Well-established competitor.

Question (34)
What does a current ratio of 1.33 indicate about a company’s current assets?

Current assets are less than net working capital.

Current assets are able to cover double the current liabilities.

Very few current assets have been funded from current liabilities.

A portion of current assets has been funded from long-term sources.

Question (35)
Which Master Circular of the Reserve Bank of India aims to ensure that low-income individuals
are able to benefit from the country’s economic growth?

Exposure Norms.

Statutory Restrictions.

Priority Sector Lending.

Prudential Norms on Income Recognition.

Question (36)
Which type of supplier is lowest risk with reference to customer concentration and the
business’s position as a supplier?

Core supplier with low interdependency with the buyer.

Core supplier with high interdependency with the buyer.

Peripheral supplier with low interdependency with the buyer.
Peripheral supplier with high interdependency with the buyer.
Question (37)
Which risk driver refers to the average time it takes a business to collect its sales in cash?

Sales growth.

Gross margin.

Accounts payable days.

Accounts receivable days.

Question (38)
What are scorecards widely used to assess?

Changes in the price of credit default swaps.

Liquidity mismatches in institutional financing.

Default probability based regression analysis.

Credit applications for small business borrowers.

What type of credit rating will most likely cause a borrower’s credit score to be adjusted
downward because of an expected downturn in the borrower’s industry?

Fail grade rating.

Single risk rating.

Facility risk rating.

External international rating.

Question (40)
A company is facing financial difficulties and is in the process of corporate debt restructuring
(CDR). What is one of the options a minority lender to this company has if the lender does not
want to commit additional funding?

Demand repayment by stipulating a recompense clause.

Obtain approval from the CDR Core Group to be excluded from the process.

Arrange for its share of funding to be provided by another lender, either existing or new.

Agree to defer principal and interest payments for one year before the CDR package becomes
effective.

Question (41)
If net sales for a company over three Fiscal Year Ends (FYE) was
FYE 1: INR 1,25,00,885,
FYE 2: INR 1,37,45,473
and FYE 3: INR 1,40,25,992,
what is this company’s sales growth for FYE 3 compared to FYE 2?

2.0%
2.04%
8.87%
10.0%

Question (42)
In what type of letter of credit is payment delayed until a specified future date?

Contract.

Demand.

Sight.

Usance.

Question (43)
Which occurs immediately after a bank guarantee is invoked?

The bank makes payment.

The beneficiary discharges the guarantee.

The bank removes the guarantee from its books.

The beneficiary enters into a contract with the applicant.

Question (44)
What previous management action is likely to raise doubt about management integrity and
whether to enter into a credit relationship with a business?

Tax planning.

Making tweaks to reported accounts to mask a declining financial performance.

Marginally increasing the dividend payout ratio compared to the previous financial year.

Making changes to the board of directors and audit committee to increase the proportion of
independent directors.

Question (45)
What is the primary source of cash flow used in calculating debt repayment capacity?

Sale of an asset.

Peripheral rental fees.

Extraordinary income.
Cash generated from operations.

Question (46)
Which activity of a borrower is an example of siphoning funds?

Using short-term capital for long-term purposes.

Routing funds through a bank other than the lender bank.

Investing in other companies without the approval of lenders.

Using borrowed funds for purposes unrelated to the operations of the borrower.

Question (47)
What type of business organisation lodges its own tax returns and is responsible for its own
taxes?

Company.

Partnership.

Sole trader.

Wholesaler.

Question (48)
What strategy can management adopt to minimise the impact of work stoppages?

Employ additional staff.

Obtain appropriate insurance.

Engage regularly with staff to ensure good labour relations.

Hold sufficient stocks so that orders can be fulfilled if production is lost during the stoppage.

Question (49)
Titan Ltd. is a lumber exporter with annual sales of INR 750,000, 45 inventory days, 35 trade
receivables days, and 40 trade payables days. What approximate amount of external financing
will Titan Ltd. need to support its operating cycle?

INR 61,644

INR 82,192

INR 102,740

INR 246,575

Question (50)
A note in the auditor's report for TGH Ltd. indicates that an asset reserve was credited INR
50,000, instead of expensed, as a result of creative accounting. What effect will this entry have
on TGH Ltd.’s financial statements?

Profit will be overstated.

Liabilities will be overstated.

Liabilities will be understated.

Shareholder's equity will be understated.

Question (51)
Under what circumstances would a company typically seek external debt financing?

When it is cash rich.

When its structure allows for new equity investors.

When equity holders are willing to take on additional risk.

When existing owners are unwilling to dilute their ownership interest.

Question (52)
What is the typical loan-to-value ratio for companies with lower levels of financial risk or high
levels of available equity finance?

60%

80%

50%

30%

Question (53)
Which activity can reduce a company’s cash flow position?

Sale of assets.

Collection of receivables.

Purchase of investments.

Increase in owner’s equity.

Question (54)
Which type of equity shares can be repaid at the discretion of the issuer?

Common stock.

Convertible preference shares.

Cumulative preference shares.
Redeemable preference shares.
Question (55)
What aspect of a business must be considered when performing an industry and business risk
assessment?

Its future cash flows.

Its vulnerability within the competitive marketplace

Management’s capacity to run the business profitably.

Its ability to generate cash through its daily operations.

Question (56)
What is the main purpose of conducting a competitive analysis during the loan pricing decision
process?

To calculate the lowest lending rate the bank is willing to apply to the loan.

To determine the probability of loss based on the competitor’s rate pricing.

To persuade the relevant committee to approve a lending rate lower than those of competitors.

To determine whether the lending rate should be adjusted based on the ceiling established by
other lenders.

Question (57)
What part of the loan pricing process sets an interest rate floor, below which the loan is
financially undesirable?

Cost analysis.

Loan structuring.

Loan accounting.

Competitive analysis.

Question (58)
What is meant by the term “excess borrowings” under the Tandon Committee approach to
lending?

The amount borrowed exceeds current liabilities.

The liquidity level exceeds the minimum required.

The maximum permissible bank borrowings exceed current assets.

The minimum required net working capital exceeds the actual amount.
Question (59)
Which describes the absolute priority rule with respect to payments made to creditors at
default?

Subordinated debt is paid before insolvency-related costs.

Available funds are paid first to the lowest ranked class until the borrower’s obligations are fully
satisfied.

Available funds are paid first to the highest ranked class until the borrower’s obligations are fully
satisfied.

Distributions to each ranked class are paid out proportionately based on its percentage in the
company's capital structure.

Question (60)
At what stage in the management cycle should the management consider the effect of changes
in the external environment on the company’s business goals?

Assessing business needs.

Developing plans to meet goals.

Aggregating and organising resources.

Adjusting plans, resources, and methodologies.

Question (61)
What factor plays a key role in influencing the industry due to a large bargaining power of a
significant supplier?

Labour disruptions.

Liberal credit terms.

Decreased sales prices.

Improved service levels

Question (62)
How might an inadequate management succession plan affect a business’s cash flow?

Training the new managers to address their skill gaps may result in excessive costs.

Cost of hiring for the positions vacated due to promotion of the new managers will impact the
cash flow.

Weak relationship of the new managers with the bank staff may result in the credit facilities not
being renewed.

Poor decisions of the new managers that lack sufficient skills or experience might result in
weaker business performance.
Question (63)
Which best describes the effect that political decisions and frequent legislation changes in India
have on its business and industry risk?
This is a single choice question. Selections are automatically selected as you use arrow to
move.
Banks absorb most of the impact and businesses are less affected as a result.

Taxation policies cause businesses to be less transparent in their financial reporting.

Opportunistic decisions that influence monetary policy can negatively affect a business’s
financial performance.

Demonetisation of high denomination currency notes is an example of legislation that negatively

affects small businesses working with cash.

Question (64)
What is considered as one of the three levels of oversight in the corporate governance process?

The media.

The regulators.

The board of directors.

Banks and other lenders.

Question (65)

How can a company’s management best minimise the impact of potential interruptions in the
input supplies?

Obtain supplier insurance.

Hold large stocks for all key supply inputs.

Maintain good personal rapport with the key input suppliers.

Ensure that there is an alternate supply source for all key inputs.

Question (66)
Which state of the economy has a neutral impact on credit risk?

Contraction.

Recovery.

Growth.

Stability.
Question (67)
Which proposition is least likely to be considered for a term loan for its financing requirements?

Expansion of a fleet of vehicles.

Capital expenditure for a power plant.

An instalment financing construction project.

Daily working capital requirements for a small business.

Question (68)
Which lists the primary components of India’s corporate debt restructuring (CDR) system?

Debtor-creditor agreements, inter-creditor agreements.

CDR Standing Forum, CDR Empowered Group, CDR Cell.

Multiple banking accounts, syndications, consortium accounts.

Repayment period, repayable amount, instalment amount, interest rate.

Q: What is the benefit of setting meaningful forecast assumptions in the overall projection
process?

To confirm future loan payments will be achievable.

Assumptions depend on the results of the projections.

To reflect factors independent of management’s past performance.

To enable a realistic assessment of the projected financial performance that a credit decision is
substantially based on.

Question (70)
XYZ trucking company (XYZ) has recently entered into an arrangement with an online sales
business to deliver their general consumer goods and expect that this partnership will improve
their sales. XYZ has sought enhanced financing to support this new business. The
transportation industry is in a decline due to a recession, and XYZ’s most recent annual
financial statement shows relatively weak sales performance. What is the next step in assessing
XYZ’s credit application?

The assessment should end, and credit should be declined.

The assessment should be postponed until the industry enters the recovery stage.

The assessment should continue and focus on total profit as a measure of success.

The assessment should continue with more focus on the sales projections scenarios and cash
flow impact.
Question (71)
In what type of security charge are goods and raw materials commonly pledged as assets?

Assignment.

Hypothecation.

Lien.

Mortgage.
Question (72)
An increase in which item will increase a borrower’s debt service coverage ratio?

Loan interest.

Loan collateral.

Cash flow from operations.

Scheduled principal repayment.

Question (73)
Which is an example of a liquidity early warning signal?

Rising corporate bond prices.

Non-consolidation of subsidiaries’ accounts.

Frequent overdrafts that are covered in a few days.

A large cheque that is returned for insufficient funds.

Question 74
When allowing a customer to draw under a domestic bill discounting facility, why is it important
to confirm that there is an underlying movement of goods?

To ensure that the transaction is not a one-off.

To avoid providing financing for intergroup transactions.

To reduce the possibility of providing accommodation finance.

To ensure that financing is provided only for goods that have been shipped to existing
customers

Question (75)
During which implementation phase of deal structure is counsel instructed on documentation
and covenant definition issues?
This is a single choice question. Selections are automatically selected as you use arrow to
move.
Design.
Drawdown.

Monitoring.

Negotiation.

Question (76)
In what type of feasibility assessment is a project’s maximum debt to equity ratio reviewed?

Cost of project.

Economic viability.

Means of finance.

Technical viability.

Question (77)
What is a characteristic of a good business plan?

Setting measurable goals.

Setting business objectives.

Being reactive to changing demand.

Defining who is accountable to the plan

Question (78)
Which source of external information about a company’s past behaviour can be used to assess
its management integrity?

Discussions with management.

Details of dividends paid over the last five years.

Opinion about management included in credit agency reports.

Account statements showing whether the company has met its obligations to the bank on time

Question (79)
What causes market overcapacity?

Industry growth.

Weak competition.

Drop in a sales price.

Low product demand.

Question (80)
What type of risk is the risk that credit exposure is not adequately structured?

Facility risk.

Financial risk

Industry risk

Management risk.