Finastra Assessment Test Finastra Assessment Corporate and Retail Lending 4 — Questions and Answers
Question 1: What is the key difference between a 'term loan A' (TLA) and a 'term loan B' (TLB) in corporate lending?
- TLA has a fixed rate while TLB has a floating rate
- TLA is typically held by banks with amortization, while TLB is institutional with bullet repayment (Correct answer)
- TLA is unsecured while TLB is always secured by collateral
- TLA finances acquisitions while TLB finances working capital only
Correct answer: TLA is typically held by banks with amortization, while TLB is institutional with bullet repayment
Term Loan A is typically held by bank lenders with scheduled amortization, while Term Loan B is sold to institutional investors with minimal amortization and a large bullet repayment at maturity.
Question 2: In Finastra's retail lending solutions, what is the primary purpose of Fusion Mortgagebot?
- Corporate loan syndication management
- Online mortgage origination and point-of-sale lending platform (Correct answer)
- Regulatory capital calculation for mortgage portfolios
- Servicing and collections for distressed retail loans
Correct answer: Online mortgage origination and point-of-sale lending platform
Fusion Mortgagebot is Finastra's digital mortgage origination platform enabling borrowers to apply online and lenders to process applications efficiently.
Question 3: What does 'PIK' (Payment-in-Kind) interest mean in a corporate loan context?
- Interest paid monthly in cash to the lender
- Interest accrued and added to the loan principal rather than paid in cash (Correct answer)
- A penalty interest rate triggered by covenant breach
- Interest denominated in a commodity such as gold or oil
Correct answer: Interest accrued and added to the loan principal rather than paid in cash
PIK interest allows the borrower to add accrued interest to the outstanding principal balance instead of paying it in cash, preserving short-term liquidity.
Question 4: Which credit bureau score is most commonly used in US retail lending decisions?
- VantageScore 4.0
- FICO Score (Correct answer)
- Experian Boost
- ChexSystems Score
Correct answer: FICO Score
The FICO Score, developed by Fair Isaac Corporation, is the most widely used credit score by US lenders for evaluating retail borrower creditworthiness.
Question 5: In commercial real estate (CRE) lending, what is a 'recourse loan'?
- A loan that can be transferred to another lender without borrower consent
- A loan where the lender can pursue the borrower's personal assets if collateral is insufficient (Correct answer)
- A loan backed by a government guarantee program
- A revolving line of credit secured by CRE properties
Correct answer: A loan where the lender can pursue the borrower's personal assets if collateral is insufficient
A recourse loan allows the lender to go beyond the collateral property and pursue the borrower's other personal or business assets to recover unpaid debt.
Question 6: What is the role of a 'Special Purpose Vehicle' (SPV) in structured lending transactions?
- To provide physical collateral storage for loan documents
- To isolate assets from the originator's balance sheet for securitization or risk transfer (Correct answer)
- To act as a government regulator for complex loan structures
- To process loan payments on behalf of multiple lenders in a syndicate
Correct answer: To isolate assets from the originator's balance sheet for securitization or risk transfer
An SPV is a separate legal entity created to hold specific assets, isolating financial risk and enabling securitization or off-balance-sheet financing.
Question 7: Under Basel III capital requirements, how are corporate loans generally classified for risk-weighting purposes?
- Always assigned 0% risk weight as inter-bank obligations
- Risk-weighted based on counterparty credit rating and exposure type, typically 20-150% (Correct answer)
- Assigned a flat 50% risk weight regardless of borrower quality
- Exempt from risk-weighting if the loan term is under 90 days
Correct answer: Risk-weighted based on counterparty credit rating and exposure type, typically 20-150%
Basel III assigns risk weights to corporate exposures based on internal ratings or standardized approaches, typically ranging from 20% for investment-grade to 150% for speculative-grade borrowers.
Finastra Assessment Test Finastra Assessment Corporate and Retail Lending 4
What is the key difference between a 'term loan A' (TLA) and a 'term loan B' (TLB) in corporate lending?