CBP Credit Analysis and Lending 2

Question 1

Which financial ratio best measures a borrower's ability to service debt from operating cash flow?

Accepted Answer

Debt service coverage ratio (DSCR)

Answer

Current ratio

Answer

Quick ratio

Answer

Price-to-earnings ratio

Question 2

In commercial lending, a 'covenant' is best described as:

Accepted Answer

A contractual condition borrowers must maintain

Answer

A type of collateral pledge

Answer

A government regulation on loan limits

Answer

A credit bureau scoring model

Question 3

A borrower's working capital is calculated as:

Accepted Answer

Current assets minus current liabilities

Answer

Total assets minus total liabilities

Answer

Net income minus dividends

Answer

Long-term debt minus equity

Question 4

Which type of loan structure is most appropriate for financing a seasonal business with fluctuating revenue?

Accepted Answer

Revolving line of credit

Answer

Term loan with fixed monthly payments

Answer

Balloon payment mortgage

Answer

Equipment finance agreement

Question 5

The 'acid-test ratio' differs from the current ratio because it excludes:

Accepted Answer

Inventory

Answer

Accounts receivable

Answer

Cash and cash equivalents

Answer

Short-term investments

Question 6

When a lender takes a 'second lien' position on collateral, it means:

Accepted Answer

The lender's claim is subordinate to a first-lien holder

Answer

The lender has the primary claim on the asset

Answer

The lender waives all rights to the collateral

Answer

The collateral is valued at 50% of market value

Question 7

Which credit risk concept refers to the total exposure a bank has to a single borrower or related group?

Accepted Answer

Concentration risk

Answer

Counterparty risk

Answer

Systemic risk

Answer

Residual risk