CLFP Credit Analysis & Risk Assessment 3

Question 1

What is 'expected loss' in credit risk management for a lease portfolio?

Accepted Answer

Probability of Default (PD) × Loss Given Default (LGD) × Exposure at Default (EAD)

Answer

The total dollar amount of current delinquencies

Answer

The historical charge-off rate over the past year

Answer

The maximum possible loss on a single transaction

Question 2

What does 'equipment obsolescence risk' mean for a lessor?

Accepted Answer

The risk that rapid technological change will reduce the equipment's market value faster than expected, eroding residual value

Answer

The risk that the lessee won't maintain the equipment properly

Answer

The risk that new regulations will ban the equipment type

Answer

The risk of equipment theft during the lease term

Question 3

What is 'charge-off' in the context of a lease portfolio?

Accepted Answer

The removal of an uncollectible lease receivable from the books as a loss after recovery efforts are exhausted

Answer

A fee charged to lessees for early termination

Answer

An adjustment to residual value estimates

Answer

The process of repossessing leased equipment

Question 4

What is a 'guaranty' from a parent company in equipment leasing?

Accepted Answer

A legal commitment by the parent to pay the subsidiary's lease obligations if the subsidiary defaults

Answer

A performance warranty from the equipment manufacturer

Answer

A government-backed loan guarantee for small businesses

Answer

A vendor promise to service the leased equipment

Question 5

What does 'delinquency rate' measure in a lease portfolio?

Accepted Answer

The percentage of the portfolio with payments that are past due by a specified number of days

Answer

The rate at which new leases are originated each month

Answer

The percentage of leases that were declined

Answer

The ratio of floating-rate to fixed-rate leases

Question 6

In equipment leasing, what is 'first loss protection' provided by a vendor?

Accepted Answer

An agreement where the vendor absorbs the initial portion of credit losses on a portfolio it originates, to give the lessor confidence in the credit quality

Answer

Insurance purchased by the lessee to cover first-payment default

Answer

A government guarantee covering the first 10% of losses

Answer

A reserve fund established by the lessor before funding