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18 Questions

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Financial Risk Management

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Questions and Answers

What is the primary consideration for determining the maturity of a loan?

Type of collateral provided

Borrower's credit history

Duration of the financing needed (correct)

Interest rate offered

What is the primary purpose of requiring collateral in lending?

To improve the lender's liquidity

To reduce the risk of lending (correct)

To enhance the borrower's credit score

To increase the interest rate

What is a key factor to consider when establishing an interest rate?

Lender's reputation

Borrower's age

Type of loan

Cost of funds (correct)

What is the primary consequence of failing to repay a loan on time?

Reduced liquidity for the lender Signup and view all the answers

What is the primary component of the 'five Cs of credit' that refers to a borrower's payment habits?

Character Signup and view all the answers

What is the purpose of the 'five Cs of credit' in lending?

To assess the borrower's creditworthiness Signup and view all the answers

What is the primary responsibility of bankers in assessing credit risk?

To evaluate the likelihood of contingencies and their potential impact Signup and view all the answers

What led to the relaxation of credit standards in the lending industry?

Increased competition among lenders Signup and view all the answers

What is the term for the phenomenon where lenders prioritize winning deals over prudent risk assessment?

Competitive Euphoria Signup and view all the answers

What is the primary focus of a banker's attention in a competitive lending environment?

The competition and market share Signup and view all the answers

What is the consequence of a lender's decision to relax credit standards to win business?

Increased credit risk and potential losses Signup and view all the answers

What is the significance of collateralization in credit risk management?

It provides a safeguard against potential losses Signup and view all the answers

What is a potential consequence of liberal credit during a period of economic prosperity?

Over-expansion or over-speculation leading to a higher risk of debt Signup and view all the answers

What type of loan is repayable upon demand or has an indefinite maturity date?

Call/Demand Loan Signup and view all the answers

What is the primary source of repayment for a self-liquidating loan?

Income from the business Signup and view all the answers

What type of credit is granted by government institutions?

Public Credit Signup and view all the answers

What is the primary characteristic of a long-term loan?

Payable for more than five years Signup and view all the answers

What is a potential risk associated with collateralized loans?

Loss of valuable property Signup and view all the answers