FIN367 Business Credit Essentials Chapter 2 Quiz
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Questions and Answers

What are the key principles of lending discussed in Chapter 2?

  • Loan documentation and security
  • Risk assessment and mitigation (correct)
  • Credit information acquisition
  • Credit evaluation and verification

    • Which model is used for credit risk assessment in the chapter?

  • The 5Cs Model
  • The CAMPARI Model (correct)
  • The Loan Agreement Model
  • The Property Security Model

    • What is one of the objectives for students upon completion of Chapter 2?

  • Understanding property security
  • Describing the credit evaluation framework
  • Applying key lending principles (correct)
  • Learning about loan documentation

    • Which aspect is included in the credit evaluation framework discussed in Chapter 2?

    <p>Guarantee and indemnity</p> Signup and view all the answers

    What is the primary role of the Marketing/Sales Department in the bank process?

    <p>Generating leads and submission of application form</p> Signup and view all the answers

    What is the purpose of the appointed solicitor in the bank process?

    <p>Perfection of legal documentation</p> Signup and view all the answers

    Where does the credit analysis and verification take place in the bank process?

    <p>Approval process</p> Signup and view all the answers

    What department is responsible for loan and securities documentation in the bank process?

    <p>Credit Administration Department</p> Signup and view all the answers

    In the context of lending principles, what does 'Principle of Proportionate Stake' refer to?

    <p>Ensuring that the borrower has a stake in the business venture</p> Signup and view all the answers

    What is the main purpose of 'Principle of Risk Taking in Credit and Lending'?

    <p>Identifying risks that can cause vulnerability in lending</p> Signup and view all the answers

    What is the objective of promoting a strong credit culture according to the text?

    <p>Discouraging irresponsible lending practice</p> Signup and view all the answers

    What concept must a lender be mindful of, according to the text?

    <p>'Principle of Risk Taking in Credit and Lending'</p> Signup and view all the answers

    What is the primary responsibility of the Business Banking / Business Center in the bank process?

    <p>Recovery of credit facilities</p> Signup and view all the answers

    What is a crucial aspect of 'Principle of Risk Taking in Credit and Lending', according to the text?

    <p>Mitigate risks with lending covenants</p> Signup and view all the answers

    What does 'Principle of Appropriate Tenure of Financing' emphasize?

    <p>Appropriate tenure for financing</p> Signup and view all the answers

    When does 'Credit facilities recovery' occur in the bank process?

    <p>Post-monitoring recovery</p> Signup and view all the answers

    Study Notes

    Key Principles of Lending

    • The key principles of lending include the Principle of Proportionate Stake, Principle of Risk Taking in Credit and Lending, and Principle of Appropriate Tenure of Financing.
    • The Principle of Proportionate Stake refers to the lender's stake in the borrower's business being proportional to the borrower's risk.

    Credit Risk Assessment

    • The model used for credit risk assessment in Chapter 2 is not specified.

    Objectives of Chapter 2

    • One of the objectives for students upon completion of Chapter 2 is to understand the key principles of lending.

    Credit Evaluation Framework

    • The credit evaluation framework includes the aspect of credit worthiness of the borrower.

    Bank Process

    • The primary role of the Marketing/Sales Department is to identify and generate new business opportunities.
    • The appointed solicitor is responsible for verifying the legal documentation of the borrower.
    • Credit analysis and verification take place in the Credit Department.
    • The Loan Documentation Department is responsible for loan and securities documentation.
    • The primary responsibility of the Business Banking / Business Center is to manage the credit portfolio and develop new business.

    Credit Culture and Risk

    • The objective of promoting a strong credit culture is to ensure that lending decisions are made in a responsible and prudent manner.
    • A lender must be mindful of the concept of risk taking and its implications.
    • A crucial aspect of the Principle of Risk Taking in Credit and Lending is to balance risk and reward.
    • The Principle of Appropriate Tenure of Financing emphasizes the importance of matching the loan tenure with the borrower's cash flow.
    • Credit facilities recovery occurs when the borrower defaults on loan repayment and the bank takes steps to recover the loan amount.

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    Description

    Test your knowledge on principles of lending, credit evaluation framework, the 5Cs model, and other key concepts from Chapter 2 of Business Credit Essentials. This quiz was created by Module Authors Jasman Tuyon, PhD, Rapheedah Musneh, PhD, and Siti Julea Supar Nurziya Muzzawer from the Faculty of Business and Management at Universiti Teknologi MARA, Sabah Branch.

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