Banking: Credit Facilities and Loan Application Process
40 Questions
1 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the primary goal of the RM during the initial discussion with the customer?

  • To ensure the customer applies for credit in the prescribed format
  • To select a good borrower from the expected business segment/sector (correct)
  • To sanction credit to the customer
  • To determine the scope of lending to the client

    • What is the purpose of scrutinizing the submitted loan application?

  • To select a good borrower
  • To collect additional information from different parties (correct)
  • To determine the customer's creditworthiness
  • To sanction credit to the customer

    • Why is it important to select a good borrower?

  • To prevent bad credit (correct)
  • To sanction credit to the customer
  • To ensure loan repayment
  • To increase the bank's revenue

    • What is the main purpose of credit investigation?

    <p>To preventively measure loan repayment</p> Signup and view all the answers

    Why is it better to not sanction any credit rather than sanctioning a bad credit?

    <p>To prevent bad credit</p> Signup and view all the answers

    What is the benefit of taking preventive measures over curative measures?

    <p>They are more cost-effective</p> Signup and view all the answers

    What is the role of the Credit Information Bureau (CIB) report in the credit process?

    <p>To provide additional information to the RM</p> Signup and view all the answers

    What is the ultimate goal of the credit process?

    <p>To create good credit</p> Signup and view all the answers

    What is the primary objective of the credit appraisal process in financial institutions?

    <p>To determine the technical and financial viability of a project</p> Signup and view all the answers

    What is the significance of proper borrower selection in credit risk management?

    <p>It reduces the risk of default</p> Signup and view all the answers

    What is the main advantage of delegating approval authority?

    <p>It allows for more efficient and timely decision-making</p> Signup and view all the answers

    What is the primary function of the approval authority?

    <p>To evaluate credit proposals and make approval decisions</p> Signup and view all the answers

    What is the main reason for centralizing credit approval authority?

    <p>To increase the efficiency of the decision-making process</p> Signup and view all the answers

    Which section of the credit proposal should get more importance at the time of reviewing a proposal?

    <p>Non-financial section</p> Signup and view all the answers

    What is the benefit of a detailed credit appraisal process?

    <p>It reduces the risk of investment by evaluating the project's feasibility</p> Signup and view all the answers

    What is the purpose of credit appraisal in investment decision-making?

    <p>To evaluate the technical and financial viability of a project</p> Signup and view all the answers

    What is measured by the Gross Margin ratio?

    <p>Income or profit</p> Signup and view all the answers

    What is the rule of thumb for the Operating Profit Margin ratio?

    <p>Higher is better</p> Signup and view all the answers

    What does the Return on Assets ratio measure?

    <p>Profitability of investments</p> Signup and view all the answers

    What is the general rule of thumb for the Depreciation ratio?

    <p>Lower is better</p> Signup and view all the answers

    Which ratio measures the earning power on shareholders' equity?

    <p>Return on Equity</p> Signup and view all the answers

    What is the general rule of thumb for the Interest Expense ratio?

    <p>Lower is better</p> Signup and view all the answers

    What is the formula for the Cushion ratio?

    <p>((GP-SG&amp;A) / Sales) × 100</p> Signup and view all the answers

    What is the general rule of thumb for the Dividend Payout Rate ratio?

    <p>Lower is better</p> Signup and view all the answers

    What is the main component of Cash Flow from Operations?

    <p>Cash transactions related to daily business activities</p> Signup and view all the answers

    What is the source of cash inflow from return on loans?

    <p>Interest income from lending to others</p> Signup and view all the answers

    What is the payback period for Project A?

    <p>2.4 years</p> Signup and view all the answers

    What is an example of a Cash Outflow in Operating Activities?

    <p>Cash paid to suppliers for inventory</p> Signup and view all the answers

    What is the main limitation of the payback period method?

    <p>It ignores the time value of money</p> Signup and view all the answers

    What is the purpose of Cash Flow from Investing?

    <p>To track cash transactions related to acquisition and disposal of long-term assets</p> Signup and view all the answers

    What is an example of a Cash Inflow in Investing Activities?

    <p>Cash received from sale of fixed assets</p> Signup and view all the answers

    What is the decision rule if the payback period is equal to the standard period?

    <p>The decision is indifferent</p> Signup and view all the answers

    What is the main objective of Cash Flow from Financing?

    <p>To track cash transactions related to financing activities, such as borrowing and repayment</p> Signup and view all the answers

    What does a shorter payback period indicate?

    <p>The project is more feasible</p> Signup and view all the answers

    What is an example of a Cash Outflow in Financing Activities?

    <p>Cash paid to repay the amounts borrowed</p> Signup and view all the answers

    What is the cumulative net cash flow for Project A at the end of year 2?

    <p>-300</p> Signup and view all the answers

    What is the purpose of the payback period method?

    <p>To determine the feasibility of a project</p> Signup and view all the answers

    What is the purpose of the Cash Flow Statement?

    <p>To provide a comprehensive picture of a company's inflows and outflows of cash</p> Signup and view all the answers

    What is the payback period for Project B?

    <p>3.27 years</p> Signup and view all the answers

    What is the formula used to calculate the payback period?

    <p>Years before full recovery + Unrecovered cost at start of full recovery year / Total cash flow during full recovery year</p> Signup and view all the answers

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser