Topic 18 to 19

Test ID: 8829412

Question #1 of 10

Question ID: 440023

St. Paul Bank has examined its loan portfolio over the last year. It has determined that the probability of default was 5%, adjusted
for the size of exposure. The expected loss over the one-year time horizon is 2.10%. The estimated exposure at default was
60% of the potential exposure. What is the loss given default over the period?
A) 70%.
B) 6.3%.
C) 7.0%.
D) 63%.

Question #2 of 10

Question ID: 440022

Shawn Murphy, FRM, an analyst with St. Paul Bank, has recently taken on larger responsibilities. The bank has recently laid off
many of its credit analysts, leaving Murphy to oversee credit analysis for all four types of borrowers. Which of the following
borrowers would Murphy most likely evaluate using credit scoring models?
A) Financial Institutions.
B) Sovereigns.
C) Consumers.
D) Corporations.

Question #3 of 10

Question ID: 444786

The three main types of banking credit analysts include:

A) counterparty credit analyst, equity analyst, and regulatory analyst.

B) fixed-income analyst, equity analyst, and regulatory analyst.
C) counterparty credit analyst, fixed-income analyst, and regulatory analyst.
D) counterparty credit analyst, fixed-income analyst, and equity analyst.

Question #4 of 10

Question ID: 444784

Risk mitigation tools used specifically by secured lenders are least likely to include detailed assessments of a borrower's:

A) willingness to pay.
B) collateral.
C) loan guarantees.

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D) credit enhancements.

Question #5 of 10

Question ID: 444787

Which of the following statements is least accurate about the financial statements information used by a credit analyst?

A) An auditor's qualified opinion indicates that the financial statements contain no material
misstatements.
B) An auditor's main responsibility is to detect fraud committed by the company.
C) The Management Discussion and Analysis (MD&A) of a company is located in its annual report.
D) Counterparty credit analysts frequently use rating agency reports in their analysis.

Question #6 of 10

Question ID: 440025

Shawn Murphy, FRM, is a credit analyst for a hedge fund. His focus is on the relative value of debt instruments and their
attractiveness as investments. Murphy is most likely which type of analyst?
A) Consumer credit analyst.
B) Buy-side fixed income analyst.
C) Credit modeling analyst.
D) Counterparty credit analyst.

Question #7 of 10

Question ID: 444783

Credit risk is least likely to result from:

A) defaults on financial obligations.

B) transactions that have settlement risk.
C) "cash and carry" transactions.
D) items purchased on "terms of credit."

Question #8 of 10

Question ID: 440024

Murphy Bank is a regional bank based in California. The bank primarily lends to large farming operations that have struggled in
recent years due to a severe drought, accompanied by many wildfires. Bank regulators have recently required that the bank write
off some of these loans, which has entirely wiped out the capital of the bank. However, the bank still has some liquidity sources it
can use, including a correspondent bank and the Federal Reserve. Which of the following statements best describes Murphy
Bank's situation?
A) Neither a failed nor insolvent bank.

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B) A failed bank but not insolvent.

C) Both a failed and insolvent bank.
D) An insolvent bank but not failed.

Question #9 of 10

Question ID: 440026

Return on equity (ROE) is a commonly used measure because it considers efficiency and leverage in addition to profitability.
Because of the standardized nature of financial performance measures, peer analysis is possible and can be used to compare
financial results. Computing ROE is an example of which of the following banking credit analyst skills?
A) Qualitative skills.
B) Secondary research skills.
C) Quantitative skills.
D) Primary research skills.

Question #10 of 10

Question ID: 444785

Which of the following statements is least accurate as it applies to credit risk evaluation techniques?

A) "Gut feelings" may be necessary to conclude whether a borrower is willing to repay a loan.
B) The most effective credit risk evaluation combines quantitative assessments with qualitative
judgments.
C) "Name lending" is a qualitative credit analysis technique that some lenders use in place of financial
analysis.
D) Willingness to pay is more important than determining the capacity to pay, when evaluating a
borrower.

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