Banking Exam Retail and Corporate Banking 3

Question 1

A corporate treasurer asks about a banker's acceptance (BA). This instrument is best described as:

Accepted Answer

A time draft drawn on and accepted by a bank, creating a short-term money market instrument

Answer

A banker's acceptance is a time draft that a bank 'accepts' (guarantees), making it a tradeable, highly liquid money market instrument.

Question 2

Which of the following best describes a syndicated loan in corporate banking?

Accepted Answer

A loan provided by a group of lenders sharing the risk under common terms arranged by a lead bank

Answer

Syndicated loans spread large credit exposures among multiple lenders who share terms negotiated by a lead arranger.

Question 3

In retail mortgage lending, a 'points' payment at closing represents:

Accepted Answer

Prepaid interest, with each point equaling 1% of the loan amount

Answer

Each discount point equals 1% of the loan amount and is prepaid interest that typically lowers the ongoing interest rate.

Question 4

The primary purpose of the Federal Deposit Insurance Corporation (FDIC) is to:

Accepted Answer

Protect depositors and maintain stability by insuring deposits up to the statutory limit

Answer

The FDIC insures deposits (currently up to $250,000 per depositor per ownership category) and resolves failed insured institutions.

Question 5

A 'covenant-lite' corporate loan differs from a traditional leveraged loan primarily because it:

Accepted Answer

Lacks maintenance financial covenants requiring periodic ratio tests

Answer

Covenant-lite loans omit maintenance covenants that would otherwise trigger a default if the borrower's financial ratios deteriorate.

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