FIN625 Glossary +MCQs PDF

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Credit Analysis & Risk Management

FIN625
Lesson 01-45
Solved by vuZs Team
Mehreen Humayun
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vuzs_banking@googlegroups.com
Which of the following components is NOT associated to financial risks?
Profitability
Capital expenditure
Liquidity
People management
Which of the following policies reward unacceptable behavior such as generating short-
term profits while deviating from credit policies or exceeding established limits, weaken
the bank's credit processes?
Constituent policies
Regulatory policies
Remuneration policies
Distributive policies
LECTURE – 06
Remuneration policies that reward unacceptable behavior such as generating short-
the bank's credit processes.
Which of the following is legally empowered to collect credit information?
Government of Pakistan
Institute of Bankers Pakistan
Credit Information Bureau
Central Board of Revenue, Pakistan
LECTURE – 04
The CIB is legally empowered to collect credit information. The member financial
institutions are bound to share their credit information with the CIB.
Claims on individuals belong to which of the following portfolios?
Investment


Retail
Project
Market
LECTURE – 14
Claims on individuals belong to the retail portfolio.
The organizational structure of risk analysis is usually based on a five-level

organizational model. Which of the following is NOT a level in this model?
Division manager
Associates
Group leader
Specialists
Ref:
organizational model 60
Level 1 executive (chief risk officer)
Level 2 division manager
Level 3 head of department (HD)
Level 4 group leader (GL)
Level 5 specialists Risk.
Which of the following requires the assessment of the borrower’s credit standing?
Credit approval process

Management
Basel II
Government
LECTURE – 15
Basel II requires the assessment of the borrower’s credit standing.
Which of the following is the credit rating of a self-governing entity, i.e. a country?
Consumer credit rating

Sovereign credit rating
Corporate credit rating
Personal credit rating
LECTURE – 04
A sovereign credit rating is the credit rating of a sovereign entity, i.e. a country.
Which of the following can result from an incorrect performance of the credit approval
process?
Substantive errors
Procedural errors
Cognitive errors


Non-cognitive errors
LECTURE – 12
Procedural errors can result from an incorrect performance of the credit approval
process.
Which of the following risks encompasses the entire spectrum of risks arising from the
economic, political and social environments of a foreign country that may have potential
consequences for foreigners’ debt and equity investments in that country?
Credit or default risk

Transfer risk
Systematic risk
Country or sovereign risk
LECTURE – 07
Country or sovereign risk encompasses the entire spectrum of risks arising from the
consequences for foreigners’ debt and equity investments in that country.
How many approaches do Basel II provide to determine the capital requirement?
Five
Four
Three
Two
LECTURE – 14
Basel II provides two approaches to determine the capital requirement:
1. A standardized approach and
2. An internal ratings-based approach (IRB approach).
All of the following are the major causes of serious banking problems, EXCEPT:
Lax credit standards for borrowers

Lax credit standards for counterparties
Poor portfolio risk management
Having attention to varying economic circumstances
LECTURE – 05
The major cause of serious banking problems continues to be directly related to lax
credit standards for borrowers and counterparties, poor portfolio risk management, or a
lack of attention to changes in economic or other circumstances that can lead to
deterioration in the credit standing of a bank's counterparties.
The level of risk is determined by the particular arrangements for settlement. All of the
following are the factors included in such arrangements that have a bearing on credit
risk EXCEPT:
The timing of the exchange of value


The payment/settlement finality

The role of intermediaries and clearing houses
Spontaneous foreign investment
LECTURE – 05
The level of risk is determined by the particular arrangements for settlement. Factors in
such arrangements that have a bearing on credit risk include: the timing of the
exchange of value; payment/settlement finality; and the role of intermediaries and
clearing houses.
Which of the following statements is TRUE for risk?
It is a venture undertaken without regard to possible loss or injury

It is the state of being certain that adverse effects will not be caused
It is conformance to the degree of excellence of a product or service
It is the perfect knowledge that has complete security from errors
Ref:
Risk, peril, danger: a venture undertaken without regard to possible loss or injury.
The level of exposure has an immediate impact on which of the following?
Loss given default

Probability of default
Exposure at default
Maturity
LECTURE – 14
The level of exposure has an immediate impact on the exposure at default (EAD).
Which of the following is the first step in the risk management process?
Select the appropriate techniques for handling losses

Identify potential losses
Implement and administer the program
Evaluate potential losses
Risk Management Process
 Identify potential losses
 Evaluate potential losses
 Select the appropriate risk management technique
 Implement and monitor the risk management program.
Banks have new possibilities to manage credit concentrations and other portfolio issues
including all of the following mechanisms EXCEPT:
Loan sales
Credit derivatives
Securitization programs
Primary loan markets


LECTURE – 10
Banks have new possibilities to manage credit concentrations and other portfolio issues.
These include such mechanisms as loan sales, credit derivatives, securitization
programs and other secondary loan markets.

As part of their ongoing activities, whose responsibility is to assess the system in place
at individual bank to identify, measure, monitor and control credit risk?
Top level managers

Low level managers
Middle level managers
Supervisors
LECTURE – 11
Supervisors should require that banks have an effective system in place to identify,
measure, monitor and control credit risk as part of an overall approach to risk
management.
Which of the following is TRUE for potential future exposures?
These should be calculated over multiple space horizons

These should be calculated over single time horizon
These should be calculated over single space horizon
These should be calculated over multiple time horizons
LECTURE – 08
Potential future exposures should therefore be calculated over multiple time horizons.
Profitability
Capital expenditure
Liquidity
People management
Loss given default

Exposure at default
Maturity
LECTURE – 14
Which of the following is a statistical method of assessing the credit risk of a loan
applicant?
Identity score


Ipsative score
Standard score
Credit score
Ref:
Credit scoring, also known as FICO scoring, is a statistical method of assessing the
credit risk of a loan applicant.
Which of the following holds your credit history, such as your first bank account, any
credit cards you have, or any applications for finance you may have made?
The Treasury Bureau

Bureau of Administration
Credit Reference Agency
Bureau of Diplomatic Security
LECTURE – 02
A credit bureau (U.S.) or credit reference agency (UK) is a company that provides
consumer credit information on individual borrowers.
Loans to certain industry sectors, asset securitization, customer-written options, credit

derivatives, credit-linked notes, are examples of which of the following?
Simple credit-granting activities

Complex credit-granting activities
Unchallenging credit-granting activities
Standard credit-granting activities
LECTURE – 07
Banks must develop a clear understanding of the credit risks involved in more complex
credit-granting activities (for example, loans to certain industry sectors, asset
securitization, customer-written options, credit derivatives, credit-linked notes).
Five
Four
Three
Two
LECTURE – 14
Who, among the following, should also consider the relationships between credit risk
and other risks?
Agents
Banks


Partners
Government
LECTURE – 05
Banks should also consider the relationships between credit risk and other risks.
Which of the following exposures include foreign exchange and financial derivative
contracts?
Liquidity sensitive
Profitability sensitive
Market sensitive
Debt sensitive
LECTURE – 12
Market-sensitive exposures include foreign exchange and financial derivative contracts.
Which of the following is the one way for a bank to deal with credit risk?
Charge all borrowers from the same industry an average rate or interest for that industry
Avoid making loans to borrowers from a broad spectrum and to specialize
geographically and in specific industries
Add a mark-up to the cost of funds for a specific borrower based on the borrower's
credit history
All loans within the conforming loan limit at the time of origination will continue
to be deemed
Ref:
All loans that were within the conforming loan limit at the time of origination will continue
to be deemed within the conforming loan limit during the remaining lives of such loans,
regardless of whether the loan limit for any subsequent year declines to a level below
the limit at the time of origination.

Transfer risk
Systematic risk
LECTURE – 07
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Which of the following statements is TRUE for exposure limits?


It is a statistical method of assessing the credit risk of a loan applicant

It is an individual's payment history that is supplied by a Credit Bureau
It ensures that the bank’s credit-granting activities are adequately diversified
It is the risk that counter-party may not meet one’s obligation in a contract
LECTURE – 08
Limits should also be established for particular industries or economic sectors,
geographic regions and specific products. Such limits are needed in all areas of the
bank’s activities that involve credit risk. These limits will help to ensure that the bank’s
credit-granting activities are adequately diversified.
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Which of the following is an important way to reduce credit risks, especially in Inter-bank
transaction?
Netting agreements
Workplace agreements
Interagency agreements
Option agreements
LECTURE – 07
Netting agreements are an important way to reduce credit risks, especially in Inter-bank
transactions.
Loss given default

Exposure at default
Maturity
LECTURE – 14
Which of the following should ensure that granting of credit exceeding certain
predetermined levels receive prompt management attention?
Multi-user systems
Limit systems
Drain back systems
Embedded systems
LECTURE – 11
Limit systems should ensure that granting of credit exceeding certain predetermined
levels receive prompt management attention.
Which of the following strategies should reflect the bank's tolerance for risk and level of
profitability, the bank expects to achieve for incurring various credit risks?


The intensive strategy

The integration strategy
The credit risk strategy
The diversification strategy
LECTURE – 05
The board of directors should have responsibility for approving and periodically
reviewing the credit risk strategy and significant credit risk policies of the bank. The
strategy should reflect the bank's tolerance for risk and the level of profitability the bank
expects to achieve for incurring various credit risks.

LECTURE – 08
The introduction of mostly automated credit decisions particularly entails a considerable

change in the user interface in which of the following applications?
Operations
Sales
Productions
Quality
LECTURE – 15
Changes in processes, in particular the introduction of mostly automated credit
decisions, entail a considerable change in the user interface in sales applications.
The ways through which banks avoid association with individuals involved in fraudulent
activities and other crimes include all of the following, EXCEPT:
They ask for references from known parties

They access credit registries
They keep the individuals responsible for managing a company at distance
They check their personal references and financial condition
LECTURE – 07
In particular, strict policies must be in place to avoid association with individuals
involved in fraudulent activities and other crimes. This can be achieved through a
number of ways, including asking for references from known parties, accessing credit


registries, and becoming familiar with individuals responsible for managing a company
and checking their personal references and financial condition.
Charge all borrowers from the same industry an average rate or interest for that
industry
credit history
to be deemed
Ref:
Which of the following is affected by the collateralized portion as well as the cost of
selling the collateral?
Loss given default

Exposure at default
Maturity
LECTURE – 13
The loss given default is affected by the collateralized portion as well as the cost of
selling the collateral.
Which of the following statements is TRUE for credit administration?

It is a critical element in maintaining the safety and soundness of a bank
It ensure that the bank’s credit-granting activities are adequately diversified
LECTURE – 09
Credit administration is a critical element in maintaining the safety and soundness of a
bank.
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Five
Four
Three


Two
LECTURE – 14
Which of the following exposures include margin and collateral agreements with
periodic margin calls, liquidity back-up lines, commitments and some letters of credit,
and some unwind provisions of securitizations?
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
Liquidity-sensitive exposures include margin and collateral agreements with periodic
margin calls, liquidity back-up lines, commitments and some letters of credit, and some
unwind provisions of securitizations.
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Which of the following terms is also called credit history or credit score?
Credit reputation
Credit risk
Credit repair
Credit union
LECTURE – 03
The term "credit reputation" can either be used synonymous to credit history or to credit
score.
How many factors should be taken into account in the segmentation of credit approval
processes?
Three
Four
Five
Six
LECTURE – 13
Thus, four factors should be taken into account in the segmentation of credit approval
processes:
1. Type of borrower
2. Source of cash flows
3. Value and type of collateral
4. Amount and type of claim



Transfer risk
Systematic risk
LECTURE – 07
Regulatory policies
LECTURE – 06
Which of the following is TRUE regarding the Credit Information Bureau (CIB)?
It is a department of Federal Reserve of USA

It is a private rating agency of Columbia
It is a public sector credit bureau of Pakistan
It is a private enterprise in Africa
LECTURE – 04
The Credit Information Bureau (CIB) is a public sector credit bureau of Pakistan.
Which of the following strategies should reflect the bank's tolerance for risk and
level of profitability, the bank expects to achieve for incurring various credit
risks?

LECTURE – 05



LECTURE – 08
Which of the following organizations often determines the process design in the
risk analysis units?
Operational organization
Sales organization
Production organization
Learning organization
LECTURE – 13
The sales organization often determines the process design in the risk analysis units.

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All of the following are synonyms for adverse credit history, EXCEPT:
Poor credit history

Non-status credit history
Impaired credit history
First-rate credit history
LECTURE – 03
Adverse credit history also called sub-prime credit history, non-status credit history,
impaired credit history, poor credit history, and bad credit history, is a negative credit
rating.
Which of the following is an important way to reduce credit risks, especially in

Inter-bank transaction?
Netting agreements
Option agreements


LECTURE – 07
transactions.

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periodic margin calls, liquidity back-up lines, commitments and some letters of
credit, and some unwind provisions of securitizations?
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12

Which of the following is the process of assessing risks and taking steps to
either eliminate or to reduce them (as far as is reasonably practicable) by
introducing control measures?
Strategic management
Operations management
Risk management
Credit management
Risk management is the process of assessing risks and taking steps to either eliminate
or to reduce them by introducing control measures. Its purpose is to generate ideas and
promote good practice for those involved in the business of risk management.
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Which of the following risks focuses more specifically on a borrower’s capacity

to obtain the foreign exchange necessary to service its cross-border debt and
other contractual obligations?

Transfer risk
Systematic risk
LECTURE – 07
Transfer risk focuses more specifically on a borrower’s capacity to obtain the foreign
exchange necessary to service its cross-border debt and other contractual obligations.


Which of the following exposures include foreign exchange and financial

derivative contracts?
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
To maximize a bank's risk-adjusted rate of return by maintaining credit risk

exposure within acceptable parameters is the goal of which of the following?
Operational risk management

Credit risk management
Commodity risk management
Quantitative risk management
LECTURE – 05
The goal of credit risk management is to maximize a bank's risk-adjusted rate of return
by maintaining credit risk exposure within acceptable parameters.

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Which of the following audits should also be used to identify areas of weakness
in the credit administration process, policies and procedures as well as any
exceptions to policies, procedures and limits?
External audits of the credit risk

Internal audits of the credit risk
Financial audits of the credit risk
Performance audits of the credit risk
LECTURE – 11
Internal audits of the credit risk processes should be conducted on a periodic basis to
determine that credit activities are in compliance with the bank’s credit policies and
procedures, that credits are authorized within the guidelines established by the bank’s
board of directors and that the existence, quality and value of individual credits are
accurately being reported to senior management.
Who, among the following, should take particular note of whether bank
management recognizes problem credits at an early stage and takes the
appropriate actions?
Top level managers

Low level managers



Supervisors
LECTURE – 11
Supervisors should take particular note of whether bank management recognises
problem credits at an early stage and takes the appropriate actions.


LECTURE – 09
bank.
Which of the following instruments are viewed as relatively sophisticated

instruments, requiring some effort by both the bank and the customer to ensure
that the contract is well understood by the customer?
Derivative function
Financial derivative
Linear derivative
Non-linear derivative
LECTURE – 12
Most market-sensitive instruments, such as financial derivatives, are viewed as
relatively sophisticated instruments, requiring some effort by both the bank and the
customer to ensure that the contract is well understood by the customer.
process?
Substantive errors
Procedural errors
Cognitive errors
LECTURE – 12
process.
How many process components are there in the credit review?
One
Two
Three
Four


LECTURE – 17
The credit review basically consists of two process components:
1. Standardized models of data evaluation
2. Documentation and evaluation of other credit assessment factors
transaction?
Netting agreements
Option agreements
LECTURE – 07
transactions.
In addition to individual borrower data, many cases will require general information on
the economic situation of a region or an industry to allow a comprehensive assessment
of credit application; here, the bank can make use of which of the following?
Higher sources
Internal sources
External sources
Lower sources
LECTURE – 16
of credit application; here, the bank can make use of external sources.
Which of the following exposures pose special challenges to the credit processes at
banks?
Digital and light sensitive

Market and liquidity sensitive
Activity and profitability sensitive
Debt and activity sensitive
LECTURE – 12
Market and liquidity-sensitive exposures pose special challenges to the credit processes
at banks.
Who, among the following, should take particular note of whether bank management
recognizes problem credits at an early stage and takes the appropriate actions?
Top level managers

Low level managers


Supervisors
LECTURE – 11
Supervisors should take particular note of whether bank management recognizes
Who, among the followin, needs to recognize that the strategy and policies must cover
many activities of the bank in which credit exposure is a significant risk?
The credit manager

The board of directors
The financial manager
The operational manager
LECTURE – 06
The board needs to recognize that the strategy and policies must cover the many
activities of the bank in which credit exposure is a significant risk.

LECTURE – 04
Which of the following is the process of assessing risks and taking steps to either
eliminate or to reduce them (as far as is reasonably practicable) by introducing control
measures?
Risk management
Credit management
Which of the following can be achieved by standardization and automation?
Risk maximization
Process maximization
Risk minimization
Process minimization
LECTURE – 14
This aspect and the risk minimization that can be achieved by standardization and
automation are the rationale behind the separation of low-volume and high-volume


lending business that can often be found in the way in which credit approval processes
are designed.
Which of the following is a private record keeping business that maintains information
about consumers and how they use credit to pay their bills?
The Treasury Bureau

The Credit Bureau
LECTURE – 02
A credit bureau (U.S.) or credit reference agency (UK) is a company that provides
consumer credit information on individual borrowers. This helps lenders assess credit
worthiness, the ability to pay back a loan, and can affect the interest rate applied to
loans.
Which of the following assesses the credit worthiness of an individual, corporation, or

even a country?
Credit rating
Credit reputation
Credit history
Credit inquiry
LECTURE – 04
A credit rating assesses the credit worthiness of an individual, corporation, or even a
country.
processes?
Three
Four
Five
Six
LECTURE – 13
processes:
1. Type of borrower

Division manager


Associates
Group leader
Specialists
Ref:
The Credit Information Bureau (CIB) is a part of Banking Surveillance Department of
which of the following?
State Bank of Pakistan

LECTURE – 04
The Credit Information Bureau (CIB) is a public sector credit bureau of Pakistan. It was
established in 1992 by the State Bank of Pakistan (SBP) under Section 25(A) of
Banking Companies Ordinance-1962.
The credit manager

LECTURE – 06
Regulatory policies
LECTURE – 06


An important element of credit risk management is the establishment of exposure limits.

The banks establish these limits on which of the following?
Groups of connected counterparties

Multiple companies which are member of a group
Multinational industries of the government
Unrelated groups of borrowers
LECTURE – 11
Supervisors should consider setting prudential limits (e.g., large exposure limits) that
would apply to all banks, irrespective of the quality of their credit risk management
process. Such limits would include restricting bank exposures to single borrowers or
groups of connected counterparties.
Which of the following should include all of the information necessary to ascertain the
current financial condition of the borrower as well as sufficient information to track the
decisions made and the history of the credit?
Credit score
Credit identity
Credit file
Credit administration
LECTURE – 09
The credit files should include all of the information necessary to ascertain the current
financial condition of the borrower or counterparty as well as sufficient information to
track the decisions made and the history of the credit.

LECTURE – 08
The credit rating of individual exposures has an immediate impact on which of the
following?
Product requirement
Capital requirement
Customer requirement
Process requirement
LECTURE – 19
The credit rating of individual exposures has an immediate impact on the capital
requirement.



 Identify potential losses
 Evaluate potential losses
 Select the appropriate risk management technique
 Implement and monitor the risk management program.
LECTURE – 04
Which of the following organizations often determines the process design in the risk
analysis units?
Sales organization
LECTURE – 13
All of the following are the examples of personal collateral, EXCEPT:
Surety ship
Guarantee and letter of support
Collateral promise
Non-mutual collateral
LECTURE – 18
Examples of personal collateral are the following:
a. surety ship
b. guarantee and letter of support
c. collateral promise


Loss given default

Exposure at default
Maturity
LECTURE – 14
Which of the following institutions supplies information to each creditor but does not give
or deny credit?
The Treasury Bureau

The Credit Bureau


LECTURE – 07

Which of the following should carry out an initial substantive check based on selected
few relevant criteria?
Operations
Sales
Productions
Quality
LECTURE – 16
Sales should carry out an initial substantive check based on a select few relevant
criteria.
Which of the following requires specific technical know how?
Interval rating
Influential rating
Financial rating
Qualitative rating
LECTURE – 17


In contrast to financial rating, which requires specific technical know-how, qualitative

rating requires comprehensive knowledge of the borrower to be successful.
Surety ship
Collateral promise
LECTURE – 18
a. surety ship
The adequacy of scope of information should be reviewed on a periodic basis by all of

the following, EXCEPT:
Business line managers

Senior management
Surplus line managers
Board of directors
LECTURE – 10
The adequacy of scope of information should be reviewed on a periodic basis by
business line managers, senior management and the board of directors to ensure that it
is sufficient to the complexity of the business.
Five
Four
Three
Two
LECTURE – 14

Division manager
Associates
Group leader
Specialists
Ref:



Which of the following instruments are viewed as relatively sophisticated instruments,

requiring some effort by both the bank and the customer to ensure that the contract is
well understood by the customer?
Derivative function
Linear derivative
LECTURE – 12
The level of risk is determined by the particular arrangements for settlement. All of the
following are the factors included in such arrangements that have a bearing on credit
risk EXCEPT:

LECTURE – 05
The level of risk is determined by the particular arrangements for settlement. Factors in
such arrangements that have a bearing on credit risk include: the timing of the
exchange of value; payment/settlement finality; and the role of intermediaries and
clearing houses.
Which of the following risks focuses more specifically on a borrower’s capacity to obtain
the foreign exchange necessary to service its cross-border debt and other contractual
obligations?

Transfer risk
Systematic risk
LECTURE – 07


Multi-user systems
Limit systems
Drain back systems
Embedded systems
LECTURE – 11
Limit systems should ensure that granting of credit exceeding certain predetermined
levels receive prompt management attention.

LECTURE – 07
Which of the following should involve in identification of possible events in economic

conditions that could have un-favorable effects on a bank’s credit exposures and
assessing the bank’s ability to withstand such changes?
Software testing
Stress testing
System testing
Integration testing
LECTURE – 10
Stress testing should involve identifying possible events or future changes in economic
conditions that could have un-favourable effects on a bank’s credit exposures and
assessing the bank’s ability to withstand such changes.

Operations
Sales
Productions
Quality
LECTURE – 15
Changes in processes, in particular the introduction of mostly automated credit
decisions, entail a considerable change in the user interface in sales applications.


process?
Substantive errors
Procedural errors
Cognitive errors
LECTURE – 12
process.
All of the following are the activities covered in a credit history or credit report, EXCEPT:
Consumer’s payment patterns

Consumer’s lending patterns
Consumer’s credit balances
Consumer’s credit inquiries by debtors
The activities covered in a credit history or credit report include, but are not limited to, a
consumer’s payment patterns, borrowing patterns, and credit balances, as well
as credit inquiries by potential creditors.

LECTURE – 05
The major cause of serious banking problems continues to be directly related to lax
credit standards for borrowers and counterparties, poor portfolio risk management, or a
lack of attention to changes in economic or other circumstances that can lead to
deterioration in the credit standing of a bank's counterparties.
Credit approval processes are started on behalf of which of the following?
Credit applicant
Production applicant
Price applicant
Project applicant
LECTURE – 14
Credit approval processes are started on behalf of a credit applicant.
obligations?



Transfer risk
Systematic risk
LECTURE – 07
measures?
Risk management
Credit management
What does AFDB stands for?
Asian Foil Deflector Beanie

African Development Bank
Apple Foil Deflector Beanie
Afghanistan Development Bank
LECTURE – 21
The African Development Bank (AFDB).
The definition of which of the following is an important pre-requisite to handle credit

approval processes in a manner which is specific to the risk involved and is efficient?
Market segments
Profit segments
Loss segments
Exposure segments
LECTURE – 15
The definition of exposure segments is an important prerequisite to handle credit
approval processes in a manner which is specific to the risk involved and efficient.
In practice, the credit applications show fields that help in documenting credit
assessment factors. All of the following are the factors usually distinguished, EXCEPT:
Market situation
Economic situation


Project evaluation
Credit service capacity
LECTURE – 18
The credit applications show fields that help document these factors. Five categories
are usually distinguished:
1. Legal situation
2. Market situation
3. Economic situation
4. Project evaluation
5. Debt service capacity

LECTURE – 05
analysis units?
Sales organization
LECTURE – 13
Which of the following is a statistical method of assessing the credit risk of a loan
applicant?
Identity score
Ipsative score
Standard score
Credit score
Credit scoring, also known as FICO scoring, is a statistical method of assessing the
credit risk of a loan applicant.
or deny credit?


The Treasury Bureau

The Credit Bureau
contracts?
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
Which of the following describes the power to incur direct loan obligations or to make
loan guarantee commitments?
Credit report
Credit authority
Credit score
Credit repair
The term “credit authority” means authority to incur direct loan obligations or to incur
primary loan guarantee commitments.
Which of the following should include all of the information necessary to ascertain the
current financial condition of the borrower as well as sufficient information to track the
decisions made and the history of the credit?
Credit score
Credit identity
Credit file
LECTURE – 09
The credit files should include all of the information necessary to ascertain the current
financial condition of the borrower or counterparty as well as sufficient information to
track the decisions made and the history of the credit.
As an exception, what will be the conversion factor applied to commitments that are
unconditionally cancelable, or that effectively provide for automatic cancellation, due to
deterioration in a borrower’s creditworthiness, at any time by the bank without prior
notice, as proposed in the June 1999 Consultative Paper?
0%
10%


20%
30%
As an exception, a 0% conversion factor will be applied to commitments that are
unconditionally cancellable, or that effectively provide for automatic cancellation, due to
deterioration in a borrower’s creditworthiness, at any time by the bank without prior
notice.

LECTURE – 09
bank.
Which of the following should be defined and weighted specifically for each segment in
plausibility check?
Risk
Profit
Criteria
Market
What will be the credit conversion factor for commitments with original maturity over one
year as proposed in the June 1999 Consultative Paper?
Continue to be 60%
Continue to be 50%
Continue to be 40%
Continue to be 30%
LECTURE – 22
The credit conversion factor for commitments with original maturity over one year will
continue to be 50%.
Surety ship
Collateral promise
LECTURE – 18
a. surety ship


One
Two
Three
Four
LECTURE – 17
Which of the following, for groups of companies, should be designed in a manner,

specific to the risk involved, efficient and should aim to focus the review on actual risk-
bearer?
Credit score
Credit approval
Credit history
LECTURE – 14
Credit approval for groups of companies should be designed in a manner which is
specific to the risk involved and efficient and should aim to focus the review on the
actual risk-bearer, that (natural or legal) person whose legal and economic situation
ultimately determines the ability to fulfill the obligations under the credit agreement.
LECTURE – 06
Five
Four
Three
Two
LECTURE – 14



industry
credit history
to be deemed
Question # 8 of 15
Which of the following is a critical element in maintaining the safety and soundness of a
bank?
Credit authority
Credit report
Credit score
LECTURE – 09
bank.

Select correct option:
Investment
Retail
Project
Market
LECTURE – 14




The strong legal position resulting from which of the following collateral, may warrant
special treatment of the relevant forms of finance?
Equity and leasing finance

Mortgage and equity finance
Mortgage and leasing finance
Venture capital and equity finance
LECTURE – 13
Mortgage finance and leasing are those forms of finance which often give the lender a
substantial degree of control over the asset being financed. The strong legal position
resulting from such collateral may warrant special treatment of the relevant forms of
finance.
Poor credit history

LECTURE – 03
rating.
Credit reputation
Credit risk
Credit repair
Credit union
LECTURE – 03
score.
Which of the following is referred to as knockout criteria?
Yellow criteria
Red criteria
Green criteria
Black criteria
LECTURE – 16


Red criteria, which, if fulfilled, lead to an outright rejection of the exposure (also referred
to as knock-out criteria).

Division manager
Associates
Group leader
Specialists
All of the following are models for the standardized evaluation of credit assessment
data, EXCEPT:
Heuristic models
Locust models
Causal models
Hybrid models
LECTURE – 17
Standardized Models of Data Evaluation (Rating Models)
These models can basically be divided into heuristic models, empirical statistical
models, and causal models.
Which of the following maps into a risk weight lower than that which applies to an
unrated claim?
High quality credit assessment

Low quality assessment
Moderate quality credit assessment
Weak quality assessment
LECTURE – 23
A high quality credit assessment (one which maps into a risk weight lower than that
which applies to an unrated claim).
Which of the following is essential as effective measure for potential future exposure?
Elimination of meaningful limits

Establishment of meaningful limits
Establishment of insignificant limits


Elimination of significant limits
LECTURE – 08
Effective measures of potential future exposure are essential for the establishment of
meaningful limits.
or deny credit?
The Treasury Bureau

The Credit Bureau
In practice, the credit applications show fields that help in documenting credit
assessment factors. All of the following are the factors usually distinguished, EXCEPT:
Market situation
Economic situation
Project evaluation
LECTURE – 18
The credit applications show fields that help document these factors. Five categories
are usually distinguished:
1. Legal situation
2. Market situation
What does EBRD stands for?
Ecuador Bank for Reconstruction and Development

European Bank for Reconstruction and Development
Egypt Bank for Reconstruction and Development
Ethiopia Bank for Reconstruction and Development
LECTURE – 21
The European Bank for Reconstruction and Development (EBRD).
Concentrations occur when, among other things, a bank’s portfolio contains a high level
of direct or indirect credits to all of the following EXCEPT:
A single counterparty
A group of unrelated counterparties
A particular industry or economic sector
A type of credit facility


LECTURE – 10
Concentrations occur when, among other things, a bank’s portfolio contains a high level
of direct or indirect credits to
(i) a single counterparty,
(ii) a group of connected counterparties,
(iii) a particular industry or economic sector,
(iv) a geographic region,
(v) an individual foreign country or a group of countries whose economies are strongly
interrelated,
(vi) a type of credit facility, or
(vii) a type of security.
Credit reputation
Credit risk
Credit repair
Credit union
LECTURE – 03
score.
Top level managers

Low level managers
Supervisors
LECTURE – 11
Supervisors should take particular note of whether bank management recognises
LECTURE – 04
Profitability


Capital expenditure
Liquidity
People management

Derivative function
Linear derivative
LECTURE – 12
The credit manager

LECTURE – 06
Both the basic approach and the advanced Internal Ratings Based (IRB) approach
require the calculation of which of the following claim/pool of claims?
Loss given default

Exposure at default
Maturity
LECTURE – 19
Both the basic approach and the advanced IRB approach require the calculation of the
probability of default (PD) of a claim/a pool of claims.
What does ADB stands for?
Asian Desktop Bus

Apple Dictionary of Biography
Asian Development Bank
Antonio Development Bank
LECTURE – 21


The Asian Development Bank (ADB).
Poor credit history

LECTURE – 03
rating.

LECTURE – 02
Which of the following processes should be conducted on a periodic basis to determine

that credit activities are in compliance with the bank’s credit policies and procedures?

LECTURE – 11
Internal audits of the credit risk processes should be conducted on a periodic basis to
determine that credit activities are in compliance with the bank’s credit policies and
procedures, that credits are authorized within the guidelines established by the bank’s
board of directors and that the existence, quality and value of individual credits are
accurately being reported to senior management.
Who, among the following should consider setting prudential limits to restrict bank
exposures to single borrower or groups of connected counterparties?
Top level managers

Supervisors
Lower level managers
LECTURE – 06


Supervisors should consider setting prudential limits to restrict bank exposures to single
borrowers or groups of connected counterparties.
of credit application; here, the bank can make use of which of the following?
Higher sources
Internal sources
External sources
Lower sources
LECTURE – 16
of credit application; here, the bank can make use of external sources.
Loan sales
Credit derivatives
LECTURE – 10
Banks have new possibilities to manage credit concentrations and other portfolio issues.
These include such mechanisms as loan sales, credit derivatives, securitization
programs and other secondary loan markets.
Which of the following is an important tool in monitoring and controlling credit risk?
Holistic rating
Interval rating
Internal risk rating
Analytical rating
LECTURE – 09
Internal risk ratings are an important tool in monitoring and controlling credit risk.

LECTURE – 21


Investment
Retail
Project
Market
LECTURE – 14
periodic margin calls, liquidity back-up lines, commitments and some letters of credit,
and some unwind provisions of securitizations?
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
Both the basic approach and the advanced Internal Ratings Based (IRB) approach
require the calculation of which of the following claim/pool of claims?
Loss given default

Exposure at default
Maturity
LECTURE – 19
Both the basic approach and the advanced IRB approach require the calculation of the
probability of default (PD) of a claim/a pool of claims.
Which of the following describes the power to incur direct loan obligations or to make
loan guarantee commitments?
Credit report
Credit authority
Credit score
Credit repair
The term “credit authority” means authority to incur direct loan obligations or to incur
primary loan guarantee commitments.




LECTURE – 07
measures?
Risk management
Credit management
Under which of the following insurance should pay for high severity losses; small losses
can be budgeted out of the person’s income?
Uncertainty principle
Large loss principle
Dependency inversion principle
Design principles
LECTURE – 36
Under the large loss principle, insurance should pay for high severity losses; small
losses can be budgeted out of the person’s income.
Under which of the following accident victims cannot sue at all, regardless of the
amount of the claim?
Pure no-fault plan

Modified no-fault plan
Add-on plan
Choice no-fault plan
LECTURE – 38
Under a pure no-fault plan, accident victims cannot sue at all, regardless of the amount
of the claim.
Which of the following is used as the highest layer in credit approval processes?


Source of cash flows

Value and type of collateral
Type of borrower
Amount and type of claim
LECTURE – 13
In general, type of borrower is used as the highest layer in credit approval processes.
Which of the following are the firms that specialize in providing advice to clients about
investing in securities, but do not offer the trading services that are provided by dealers?
Financial Advisers
Sale Operators
Board of Directors
Production Managers
LECTURE – 30
Advisers are firms that specialize in providing advice to clients about investing in
securities, but do not offer the trading services that are provided by dealers.
Which of the following incorporates not only economic data but also qualitative
information concerning the borrower?
Credit approval
Credit review
Credit score
Credit history
LECTURE – 16
The credit review incorporates not only economic data but also qualitative information
concerning the borrower.
Which of the following maps into a risk weight lower than that which applies to an
unrated claim?

LECTURE – 23
A high quality credit assessment is the one which maps into a risk weight lower than
that which applies to an unrated claim.
Who supports a pragmatic approach of mutual recognition for internationally active

banks as a key basis for international supervisory co-operation?
The supervisor
The shareholder
The committee


The manager
LECTURE – 29
The Committee supports a pragmatic approach of mutual recognition for internationally
active banks as a key basis for international supervisory co-operation.
Which of the following are the firms that are registered with securities regulators to buy
or sell securities on behalf of clients?
Buyers
Customers
Dealers
Patrons
LECTURE – 30
Dealers are firms that are registered with securities regulators to buy or sell securities
on behalf of clients.
Securitization exposures, as described in Basel Accord, can include but are not
restricted to all of the following, EXCEPT:
Asset-backed securities
Credit enhancements
Liquidity facilities
Profitability rate
LECTURE – 27
Banks are required to hold regulatory capital against all of their securitization
exposures, including those arising from the provision of credit risk mitigates to a
securitization transaction, investments in asset- backed securities, retention of a
subordinated tranche, and extension of a liquidity facility or credit enhancement.
Which of the following can be statistically calculated using a measure of dispersion,

such as the standard deviation?
Objective risk
Subjective risk
Sovereign risk
Operational risk
LECTURE – 31
Objective risk is defined as the relative variation of actual loss from expected loss, it
can be statistically calculated using a measure of dispersion, such as the standard
deviation.

Although the treatments of collateral, netting and credit derivatives and guarantees are
based on similar concepts, which of the following are different?
Quality weighting schemes

Risk weighting schemes
Explicit weighting schemes


Temporal weighting schemes

LECTURE – 24
Although the treatments of collateral, netting and credit derivatives and guarantees are
based on similar concepts, the risk weighting schemes are different.
industry
credit history
to be deemed
Which of the following is the process that identifies loss exposures faced by an
organization and selects the most appropriate techniques for treating such exposures?
Knowledge management
Risk management
Quality management
LECTURE – 32
Risk Management is a process that identifies loss exposures faced by an organization
and selects the most appropriate techniques for treating such exposures.
Generally, collaterals can be divided into how many types?
One
Two
Three
Four
LECTURE – 18
Collateral is generally divided into personal and physical collateral.
Loan sales
Credit derivatives


Of the following who is an insurer in which the salesperson is an employee of the

insurer, not an independent contractor?
Exclusive agent
Independent agent
General agent
Direct writer

Which of the following refers to life insurance that is sold by mutual savings banks, over
the phone or through web sites?
Savings Bank Life Insurance

Auto Insurance
Crime Insurance
Liability Insurance
Multi-user systems
Limit systems
Drain back systems
Embedded systems


Operations
Sales
Productions
Quality



All of the following are the forms of crime insurance coverage, EXCEPT:
Commercial crime coverage form (discovery version and loss-sustained version)

Commercial crime policy (discovery version and loss-sustained version)
General crime coverage form (discovery version and loss-sustained version)
Government crime policy (discovery version and loss-sustained version)
credit history
to be deemed
Which of the following should be defined and weighted specifically for each segment in
plausibility check?
Risk
Profit
Criteria
Market
The ways through which banks avoid association with individuals involved in fraudulent
activities and other crimes include all of the following, EXCEPT:

Which of the following is the uncertainty in earnings due to misconduct by employees,

computer errors, flooding, lightning strikes and other similar events?
Capital risk
Liquidity risk


Operational risk
Interest rate risk
Which of the following is the risk of loss due to the failure of internal processes?
Off-balance-sheet risk
Firm-specific credit risk
Systematic credit risk
Operational risk
Yellow criteria
Red criteria
Green criteria
Black criteria
Which of the following concern the amount of surplus capital of insurance companies
included in the capital of the consolidated group?
Qualitative disclosures
Quantitative disclosures
Incidental disclosures
Accidental disclosures
www.vuzs.net

Accident
An event or occurrence which is unforeseen and unintended
Accident and Health Insurance

A type of coverage that pays benefits, sometimes including reimbursement for loss of income, in case of
sickness, accidental injury, or accidental death
Actual Cash Value (ACV)

1) The cost of replacing or restoring property at prices prevailing at the time and place of the loss, less
depreciation, however caused; 2) replacement cost minus
Actuary
A person professionally trained in the technical aspects of pensions, insurance and related fields. The
actuary estimates how much money must be contributed to an insurance or pension fund in order to
provide future
Advance Premium Mutual

Mutual insurance company owned by the policy owners that do not issue assessable policies but charges
premiums expected to be sufficient to pay all claims and expenses
Adverse Selection
The tendency of persons who present a poorer-than-average risk to apply for, or continue, insurance to a
greater extent than do persons with average or better-than-average expectations of loss
Agent
An insurance company representative licensed by the state, who solicits, negotiates or effects contracts
of insurance, and provides service to the policyholder for the insurer
Aggregate Deductible
Deductible in some property and health insurance contracts in which all covered losses during a year are
added together and the insurer pays only when the aggregate deductible amount is exceeded
Alien Insurer
An insurance company domiciled in another country
Application
A signed statement of facts made by a person applying for life insurance and then used by the insurance
company to decide whether or not to issue a policy. The application becomes part of the insurance
contract when the policy is issued
Assessment Mutual
Mutual insurance company that has the right to assess policy owners for losses and expenses
Assets
All funds, property, goods, securities, rights of action, or resources of any kind owned by an insurance
company. Statutory accounting, however, excludes non-admitted assets, such as deferred or overdue
premiums, that would be considered assets under generally accepted accounting principles (GAAP)
Assignment
The legal transfer of one person's interest in an insurance policy to another person
Assumption of Risk Doctrine

Defense against a negligence claim that bars recovery for damages if a person understands and recognizes
the danger inherent in a particular activity or occupation
Assumptions
Conditions and rules underlying the calculation of a pension benefit, including expected interest, mortality
and turnover
Avoidance
see Loss Avoidance
Basic Form
See Dwelling Property 1
Benefits
The amount payable by the insurance company to a claimant, assignee, or beneficiary when the insured
suffers a loss covered by the policy
Binder
A written or oral contract issued temporarily to place insurance in force when it is not possible to issue a
new policy or endorse the existing policy immediately. A binder is subject to the premium and all the
terms of the policy to be issued
Blue Cross
An independent, nonprofit membership corporation providing protection on a service basis against the
cost of hospital care in a limited geographical area
Blue Shield
An independent, non-profit membership corporation providing protection on a service basis against the
cost of surgical and medical care in a limited geographical area
Bond
A certificate issued by a government or corporation as evidence of a debt. The issuer of the bond promises
to pay the bondholder a specified amount of interest for a specified period and to repay the loan on the
expiration (maturity) date
Book of Business
The number, size and type of accounts (policyholders) that an agent "owns"
Broad Form
see Dwelling Property 2; Homeowners Policy
Broker
A marketing specialist who represents buyers of property and liability insurance and who deals with either
agents or companies in arranging for the coverage required by the customer
Burglary
Breaking and entering into another person's property with felonious intent
Burglary and Theft Insurance

Coverage against property losses due to burglary, robbery, or larceny
Business Insurance
A policy which primarily provides coverage of benefits to a business as contrasted to an individual. It is
issued to indemnify a business for the loss of services of a key employee or a partner who becomes
disabled
Calendar-year Deductible
Amount payable by an insured during a calendar year before a group or individual health insurance policy
begins to pay for medical expenses
Cancellation
The discontinuance of an insurance policy before its normal expiration date, either by the insured or the
company
Capacity
The amount of capital available to an insurance company or to the industry as a whole for underwriting
general insurance coverage or coverage for specific perils
Captive Insurer
Insurance Company established and owned by a parent firm in order to insure its loss exposures while
reducing premium costs, providing easier access to a reinsurer, and perhaps easing tax burdens
Cargo Insurance
Type of ocean marine insurance that protects the shipper of the goods against financial loss if the goods
are damaged or lost
Casualty Insurance
Insurance concerned with the insured's legal liability for injuries to others or damage to other persons'
property; also encompasses such forms of insurance as plate glass, burglary, robbery and workers'
compensation
Catastrophe
Event which causes a loss of extraordinary magnitude, such as a hurricane or tornado
Causes-of-loss Form
Form added to commercial property insurance policy that indicates the causes of loss that are covered.
There are four causes-of-loss forms: basic, broad, special, and earthquake
Cede
To transfer all or part of a risk written by an insurer (the ceding, or primary company) to a reinsurer
Cession
Amount of the insurance ceded to a reinsurer by the original insuring company in a reinsurance operation
Choice No-Fault
Allows auto insurers the choice of remaining under the tort system or choosing no-fault at a reduced
premium
Claim
A request for payment of a loss which may come under the terms of an insurance contract
Civil Law
The portion of law that deals with interactions between individual. The two branches of civil law are
contract law and tort law
Claims Adjustor
Person who settles claims: an agent, company adjustor, independent adjustor, adjustment bureau, or
public adjustor
Coinsurance
1) A provision under which an insured who carries less than the stipulated percentage of insurance to
value, will receive a loss payment that is limited to the same ratio which the amount of insurance bears
to the amount required; 2) a policy provision frequently found in medical insurance, by which the insured
person and the insurer share the covered losses under a policy in a specified ratio, i.e., 80 percent by the
insurer and 20 percent by the insured
Combined Ratio
Basically, a measure of the relationship between dollars spent for claims and expenses and premium
dollars taken in; more specifically, the sum of the ratio of losses incurred to premiums earned and the
ratio of commissions and expenses incurred to premiums written. A ratio above 100 means that for every
premium dollar taken in, more than a dollar went for losses, expenses, and commissions
Commercial General Liability Policy (CGL)

Commercial liability policy drafted by the Insurance Services Office containing two coverage forms-an
occurrence form and a claims-made form
Commercial Lines
Insurance for businesses, organizations, institutions, governmental agencies, and other commercial
establishments
Commercial Package Policy (CPP)

A commercial policy that can be designed to meet the specific insurance needs of business firms. Property
and liability coverage forms are combined to form a single policy
Commission
The part of an insurance premium paid by the insurer to an agent or broker for his services in procuring
and servicing the insurance
Commissioner
A state officer who administers the state's insurance laws and regulations. In some states, this regulator
is called the director or superintendent of insurance
Common Law
The law that has evolved over time as a result of previous court decisions, rather than having been enacted
by a legislative body
Comparative Negligence
Under this concept a plaintiff (the person bringing suit) may recover damages even though guilty of some
negligence. His or her recovery, however, is reduced by the amount or percent of that negligence
Completed Operations
The liability arising out of faulty work performed away from the premises after the work or operations are
completed, applicable to contractors, plumbers, electricians, repair shops, and similar firms
Compulsory Insurance
Any form of insurance which is required by law
Compulsory Insurance Law

Law protecting accident victims against irresponsible motorists by requiring owners and operators of
automobiles to carry certain amounts of liability insurance in order to license the vehicle and drive legally
within the state
Conditions
Provisions inserted in an insurance contract that qualify or place limitations on the insurer's promise to
perform
Consideration
One of the elements for a binding contract. Consideration is acceptance by the insurance company of the
payment of the premium and the statement made by the prospective policyholder in the application
Consequential Loss
Financial loss occurring as the consequence of some other loss. Often called an indirect loss
Contingent Liability
Liability arising out of work done by independent contractors for a firm. A firm may be liable for the work
done by an independent contractor if the activity is illegal, the situation does not permit delegation of
authority, or the work is inherently dangerous
Contract
A binding agreement between two or more parties for the doing or not doing of certain things. A contract
of insurance is embodied in a written document called the policy
Contractual Liability
Legal liability of another party that the business firm agrees to assume by a written or oral contract
Contribution by Equal Shares

Type of other-insurance provision often found in liability insurance contracts that requires each company
to share equally in the loss until the share of each insurer equals the lowest limit of liability under any
policy or until the full amount of loss is paid
Contributory
A group insurance plan issued to an employer under which both the employer and employee contribute
to the cost of the plan. Seventy-five percent of the eligible employees must be insured
Contributory Negligence
Negligence of the damaged person that helped to cause the accident. Some states bar recovery to the
plaintiff if the plaintiff was contributory negligent to any extent. Others apply comparative negligence
Corridor Deductible
Major medical plan deductible that excludes benefits provided by a basic plan if both a basic and a
supplemental group major medical expense policy are in force
Cost Basis
An amount attributed to an asset for income tax purposes; used to determine gain or loss on sale or
transfer; used to determine the value of a gift
Cost of Risk
The reduction in business value that arises as a result of risk
Coverage
The scope of protection provided under a contract of insurance; any of several risks covered by a policy
Coverage for Damage to Your Auto
That part of the personal auto policy insuring payment for damage or theft of the insured automobile.
This optional coverage can be used to insure both collision and other-than-collision losses
Covered
A person covered by a pension plan is one who has fulfilled the eligibility requirements in the plan, for
whom benefits have accrued, or are accruing, or who is receiving benefits under the plan
Credibility
A statistical measure of the degree to which past results make good forecasts of future results
Credit Insurance
A guarantee to manufacturers, wholesalers, and service organizations that they will be paid for goods
shipped or services rendered. Applies to that part of working capital which is represented by accounts
receivable
Death Benefit
A payment made to a designated beneficiary upon the death of the employee annuitant
Declarations
Statements in an insurance contract that provide information about the property or life to be insured and
used for underwriting and rating purposes and identification of the property or life to be insured
Deductible
An amount which a policyholder agrees to pay, per claim or per accident, toward the total amount of an
insured loss
Demutualization
The process of changing the legal structure of an insurance company from a mutual form of ownership to
a stock form of ownership
Depreciation
A decrease in the value of property over a period of time due to wear and tear or obsolescence.
Depreciation is used to determine the actual cash value of property at time of loss
Direct Loss
Financial loss that results directly from an insured peril
Direct Premiums Written

Property and casualty insurance premiums written (less return premiums), without any allowance for
premiums for assumed or ceded reinsurance
Direct Response System

A marketing method where insurance is sold without the services of an agent. Potential customers are
solicited by advertising in the mail, newspapers, magazines, television, radio, and other media
Direct Writer
The industry term for a company which uses its own sales employees to write its policies. Sometimes
refers to companies which contract with exclusive agents
Disability
A physical or a mental impairment that substantially limits one or more major life activities of an
individual. It may be partial or total
Dismemberment
Loss of body members (limbs), or use thereof, or loss of sight due to injury
Dividend
(1) A return of part of the premium on participating insurance to reflect he difference between the
premium charged and the combination of actual mortality, expense and investment experience. Such
premiums are calculated to provide some margin over the anticipated cost of the insurance protection.
(2) An amount returned to a policyholder by an insurance company out of its earnings. (3) In capital stock
companies, a share of the profits distributed to stockholders. (4) Portion of the premium which is returned
to the insured because of favorable experience by the company. (5) A policy holder's share in the insurer's
divisible surplus fund apportioned for distribution, which may take the form of a refund of part of the
premium on a participating policy. The term is also used for a stockholder's share of the portion of a
corporation's earnings that is distributed in cash or additional stock
Domestic Insurer
An insurance company is a domestic company in the state in which it is incorporated
Duplication of Benefits
Overlapping or identical coverage of the same, insured under two or more health plans, usually the result
of contracts of different insurance companies, service organizations, or pre-payment plans; also known
as multiple coverage
Dwelling Property 1
Property insurance policy that insures the dwelling at actual cash value, other structures, personal
property, fair rental value, and certain other coverage, covers a limited number of perils
Dwelling Property 2
Property insurance policy that insures the dwelling and other structures at replacement cost, adds
additional coverage and has a greater list of covered perils than the Dwelling Property 1 policy
Dwelling Property 3
Property insurance policy that covers the dwelling and other structures against direct physical loss from
any peril except for those perils otherwise excluded. However, personal property is covered on a named-
perils basis
Earned Income
Employment income derived from salary, wages, commissions, or fees
Economic Loss
The estimated total cost, both insured and uninsured, of mishaps (such as motor vehicle accidents, work
accidents, and fires); includes such factors as property damage, funeral expenses, wage loss, insurance
administration costs, and medical, hospital and legal costs
Endorsements
(1) An additional piece of paper, not a part of the original contract, which cites certain terms and which,
when attached to the original contract, becomes a legal part of that contract (2) An amendment of the
policy usually by means of a rubber stamp or rider
Equities
Investments in the form of ownership of property, usually common stocks, as distinguished from fixed
income bearing securities, such as bonds or mortgages
Errors and Omissions Insurance

Liability insurance policy that provides protection against loss incurred by a client because of some
negligent act, error, or omission by the insured
Estate
The assets and liabilities of a person left at death
Estate Planning
Developing a plan to transfer all of your property from one generation to the next or within a generation
Exclusive Agent
An agent who is employed by one and only one insurance company and who solicits business exclusively
for that company
Expense Loading
See Loading
Experience
A term used to describe the relationship, usually expressed as a percent or ratio, of premium to claims for
a plan, coverage, or benefits for a stated time period
Experience Rating
The process of determining the premium rate for a group risk, wholly or partially on the basis of that
group's experience
Exposure Unit
Unit of measurement used in insurance pricing
Extended Reporting Period

An additional period of time after policy expiration during which valid claims will be paid under a claims-
made policy of liability insurance
Extended Reporting Period Endorsement

Added to a claims-made policy of liability insurance to provide additional period of time during which valid
claims will be paid
Extortion
Surrender of property away from the premises as a result of a threat to do bodily harm to the named
insured, relative, or invitee who is being held captive
General Agency System

Type of life insurance marketing system in which the general agent is an independent businessperson who
represents only one insurer, is in charge of a territory, and is responsible for hiring, training, and
motivating new agents
General Average
In ocean marine insurance, a loss incurred for the common good that is shared by all parties to the venture
General Damages
Damages awarded to an injured person for intangible loss which cannot be measured directly by dollars,
popularly known as "pain and suffering." General damages are distinguished from special damages which
are awarded for actual economic loss, such as medical costs, loss of income, etc.
Generally Accepted Accounting Principles (GAAP)

Principles of accounting and reporting business results developed by the American Institute of Public
Accountants
Good Student Discount

Reduction of automobile premium for a young driver at least sixteen who ranks in the upper 20 percent
of his or her class, has a B or 3.0 averages, or is on the Dean's list or honor roll. It is based on the premise
that good students are better drivers
Grace Period
A specified period after a premium payment is due, in which the policyholder may make such payment,
and during which the protection of the policy continues
Gross Premium
The premium paid by the policyholder
Group Insurance
Insurance written on a number of people under a single master policy, issued to their employer or to an
association with which they are affiliated
Hazard
Condition that creates or increases the chance of loss
Health Insurance
(1) Insurance against financial losses resulting from sickness or accidental bodily injury (2) Protection
which provide payment of benefits for covered sickness or injury. Included under this heading are various
types of insurance such as accident insurance, disability income insurance, medical expense insurance,
and accidental death and dismemberment insurance (3) Insurance providing for the payment of benefits
as a result of sickness or injury. Includes various types of insurance such as accident insurance, disability
income insurance, medical expense insurance, accidental death insurance, and dismemberment
insurance
Hedging
Technique for transferring the risk of unfavorable price fluctuations to a speculator by purchasing and
selling options and futures contracts on an organized exchange
Homeowners Policy
A package of insurance providing home owners with a broad range of property and liability coverage
Hull Insurance
(1) Class of ocean marine insurance that covers physical damage to the ship or vessel insured, typically
written on an "all-risks" basis. (2) Physical damage insurance on aircraft- similar to collision insurance in
an automobile policy
Hurricane
A tropical storm marked by extremely low barometric pressure and circular winds with a velocity of 75
miles an hour or more
Indemnification
Compensation to the victim of a loss, in whole or in part, by payment, repair, or replacement
Indemnity
Legal principle that specifies an insured should not collect more than the actual cash value of a loss but
should be restored to approximately the same financial position as existed before the loss
Independent Agent
An independent business person who usually represents two or more insurance companies in a sales and
service capacity and who is paid on a commission basis
Indirect Loss
See Consequential Loss
Individual Insurance
Policies which provide protection to the policyholder and/or his/her family. Sometimes called Personal
Insurance as distinct from group and blanket insurance
Inland Marine Insurance

(1) A broad form of insurance, generally covering articles in transit as well as bridges, tunnels and other
means of transportation and communication. Besides goods in transit (generally excepting trans-ocean),
it includes numerous "floater" policies, such as those covering personal effects, personal property,
jewelry, furs, fine arts, and other items (2) A broad type of insurance, generally covering articles that may
be transported from one place to another as well as bridges, tunnels and other instrumentalities of
transportation. It includes goods in transit (generally excepting trans-ocean) as well as numerous "floater"
polices such as personal effects, personal property, jewelry, furs, fine art and others
Inspection Report
A report (usually written) of an investigation of an applicant, conducted by an independent agency that
specializes in insurance investigations. The report covers such matters as occupation, financial status,
health history, and moral problems
Insolvent
Having insufficient financial resources (assets) to meet financial obligations (liabilities)
Insurability
Acceptability to the company of an applicant for insurance
Insurable Risk
The conditions that make a risk insurable are (a) the peril insured against must produce a definite loss not
under the control of the insured, (b) there must be a large number of homogeneous exposures subject to
the same perils, (c) the loss must be calculable and the cost of insuring it must be economically feasible,
(d) the peril must be unlikely to affect all insured simultaneously, and (e) the loss produced by a risk must
be definite and have a potential to be financially serious
Insurance
(1) A system under which individuals, businesses, and other organizations or entities, in exchange for
payment of a sum of money (a premium), are guaranteed compensation for losses resulting from certain
perils under specified conditions (2) Protection by written contract against the financial hazards (in whole
or in part) of the happenings of specified fortuitous events
Insurance Company
(1) An organization chartered to operate as an insurer (2) Any corporation primarily engaged in the
business of furnishing insurance protection to the public
Insurance Commissioner
The top insurance regulatory official in a state
Insured
A person or organization covered by an insurance policy, including the "named insured" and any other
parties for whom protection is provided under the policy terms
Insurer
The party to the insurance contract who promises to pay losses or benefits. Also, any corporation engaged
primarily in the business of furnishing insurance to the public
Insuring Agreement
That part of an insurance contract that states the promises of the insurer
Integration
A coordination of pension, disability or other benefit with the other sources of income, such as Social
Security benefit, through a specific formula designed to ensure reasonable income replacement. Qualified
plans must integrate so that total benefits are non-discriminatory between rank and file employees and
owners, officers or highly compensated employees
Interest
Money paid for the use of money
Investment Income
(1) The income generated by a company's portfolio of investments (such as in bonds, stocks, or other
financial ventures) (2) The portion of a company's income which is derived from its investments, including
interest and dividends on stocks and bonds
Joint Underwriting Association

(1) One of several types of "shared market" mechanisms used to make automobile insurance available to
persons who are unable to obtain such insurance in the regular market. JUAs also have been created in
some states to help alleviate availability problems in the fields of medical malpractice and commercial
insurance (2) A device used to provide insurance to those who cannot obtain insurance in the voluntary
market. Certain companies (called carriers) issue policies at one rate level and handle claims, but the
ultimate costs are borne by all companies writing insurance in that state
Last Clear Chance Rule

Statutory modification of the contributory negligence law allowing the claimant endangered by his or her
own negligence to recover damages from a defendant if the defendant has a last clear chance to avoid
the accident but fails to do so
Law of Large Numbers

Concept that the greater the number of exposures, the more closely will actual results approach the
probable results expected from an infinite number of exposures
Liability
Any legally enforceable obligation
Liability Insurance
(1) Insurance covering the policyholder's legal liability resulting from injuries to other persons or damage
to their property (2) Provides protection for the insured against loss arising out of legal liability to third
parties
Liability Limits
The stipulated sum or sums beyond which an insurance company is not liable to protect the insured
Liability Without Fault

Principle on which workers compensation is based, holding the employer absolutely liable for
occupational injuries or disease suffered by workers, regardless of who is at fault
Life Insurance
Insurance providing for payment of a specified amount on the insured's death, either to his or her estate
or to a designated beneficiary; or in the case of an endowment policy, to the policy holder at a specified
date
Liquidation
Dissolving a company by selling its assets for cash
Lloyd’s of London
Insurance marketplace where brokers, representing clients with insurable risks, deal with Lloyd's
underwriters, who in turn represent investors. The investors are grouped together into syndicates that
provide capital to insure the risks
Loading
The amount that must be added to the pure premium for expenses, profit, and a margin for contingencies.
See Expense Loading
Long-Term Care
The continuum of broad-ranged maintenance and health services to the chronically ill, disabled, or
retarded. Services may be provided on an inpatient (rehabilitation facility, nursing home, and mental
hospital), outpatient, or at-home basis
Loss
The happening of the event for which insurance pays
Loss Control
Any conscious action (or decision not to act) intended to reduce the frequency, severity, or
unpredictability of accidental losses
Loss Prevention
Any measure which reduces the probability or frequency of a particular loss but does not eliminate
completely all possibility of that loss
Loss Ratio
A ratio calculated by dividing claims into premiums. It may be calculated in several different ways, using
paid premiums or earned premiums, and using paid claims with or without changes in claim reserves and
with or without changes in active reserves
Loss Reserve
The amount set up as the estimated cost of a claim
Major Medical Insurance

Health insurance to finance the expense of major illness and injury. Characterized by large benefit
maximums ranging up to $250,000 or no limit, the insurance, above an initial deductible, reimburses the
major part of all charges for hospital, doctor, private nurses, and medical appliances, prescribed out-of-
hospital treatment, drugs, and medicines. The insured person as coinsurer pays the remainder
Malpractice
Improper care or treatment by a physician, hospital, or other provider of health care
Manuscript Policy
Policy designed for a firm's specific needs and requirements
Marine Insurance
A form of insurance primarily concerned with means of transportation and communication, and with
goods in transit (see "Inland Marine Insurance" and "Ocean Marine Insurance")
Market Price (or Market Value)

The price at which a security can be bought or sold at any particular time
Mass Merchandising
Plan for insuring individual members of a group, such as employees of firms or members of labor unions,
under a single program of insurance at reduced premiums. Property and liability insurance is sold to
individual members using group insurance marketing methods
Medical Expense Insurance

A form of health insurance that provides benefits for expenses incurred for medical care. This form of
health insurance provides benefits for expenses of physicians, hospital, nursing, and related health
services, and supplies. These benefits may be related to actual expense, specified sums, or services
rendered. Such insurance sometimes includes benefits for prevention and diagnosis as well as treatment
Misrepresentation
A false, incorrect, improper, or incomplete statement of a material fact, made in the application for a
policy
Moral Hazard
Hazard arising from any nonphysical, personal characteristic of a risk that increases the possibility of loss
or may intensify the severity of loss for instance, bad habits, low integrity, poor financial standing
Named Perils
Coverage in a property policy that provides protection against loss from only the perils specifically listed
in the policy rather than protection from physical loss. Examples of named perils are fire, windstorm, theft,
smoke, etc.
National Association of Insurance Commissioners (NAIC)

The association of insurance commissioners of various states formed to promote national uniformity in
the regulation of insurance
Negligence
Failure to use the care that a reasonable and prudent person would have used under the same or similar
circumstances
No-Fault
A type of auto insurance mechanism whereby the right to sue another party for damages caused by
negligence is limited and, in exchange, expanded first party benefits are offered
No-fault Automobile Insurance

A form of insurance by which a person's financial losses resulting from an automobile accident are paid
by his or her own insurer regardless of who was at fault
Occurrence
An accident, including continuous or repeated exposure to substantially the same general, harmful
conditions, that results in bodily injury or property damage during the period of an insurance policy
Occurrence Policy
A liability insurance policy that covers claims arising out of occurrences that take place during the policy
period, regardless of when the claim is filed
Ocean Marine Insurance

(1) Insurance for sea-going vessels, including liabilities connected with them, and their cargoes. (2)
Coverage on all types of vessels, including liabilities connected with them, and on their cargoes
Package Policy
A combination of two or more individual polices or coverage into a single policy. A homeowner’s policy,
for example, is a package combining property, liability and theft coverage for the homeowner
Pension Plan
A plan established and maintained by an employer, group of employers, union or any combination,
primarily to provide for the payment of definitely determinable benefits to participants after retirement
Percentage Participation
A provision in a health insurance contract that the insurer and insured will share covered losses in agreed
proportions. See also Coinsurance
Peril
(1) The cause of a loss insured against in a policy (2) The cause of a possible loss, such as fire, windstorm,
theft, explosion, or riot
Personal Lines
Those types of insurance, such as auto or home insurance, for individuals or families rather than for
businesses or organizations
Physical Damage
Damage to or loss of the auto resulting from collision, fire, theft or other perils
Policy
(1) The printed legal document stating the terms of the insurance contract that is issued to the
policyholder by the company (2) A contract of insurance (3) The legal document issued by the company
to the policyholder, which outlines the conditions and terms of the insurance; also called the policy
contract or the contract
Policyholder
(1) The person who owns a life insurance policy. This is usually the insured person, but it may also be a
relative of the insured, a partnership or a corporation (2) A person who pays a premium to an insurance
company in exchange for the insurance protection provided by a policy of insurance
Pool
An organization of insurers or reinsurers through which particular types of risk are underwritten and
premiums, losses and expenses are shared in agreed-upon amounts
Premium
The sum paid by a policyholder to keep an insurance policy in force
Premium Tax
A tax, imposed by each state, on the premium income of insurers doing business in the state
Product Liability
Legal liability incurred by a manufacturer, merchant, or distributor because of injury or damage resulting
from the use of its product
Product Liability Insurance

Protection against financial loss arising out of the legal liability incurred by a manufacturer, merchant, or
distributor because of injury or damage resulting from the use of a covered product
Proof of Loss
(1) Documentation presented to the insurance company by the insured in support of a claim so that the
insurer can determine its liability under the policy (2) Documentary evidence required by an insurer to
prove a valid claim exists. It usually consists of a claim form completed by the insured and the insured's
attending physician. For medical expense insurance itemized bills must also be included
Property Insurance
(1) Insurance providing financial protection against the loss of, or damage to, real and personal property
caused by such perils as fire, theft, windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism,
malicious mischief, riot and civil commotion, and smoke (2) Provides financial protection against loss or
damage to the insured's property caused by such perils as fire, windstorm, hail, etc.
Provision
A part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature,
benefit, condition, requirement, etc. of the insurance protection afforded by the contract
Proximate Cause
The dominating cause of loss or damage; an unbroken chain of events between the occurrence and
damage
Punitive Damages
A court-awarded amount that exceeds the economic losses and general damages of a plaintiff and is
intended solely to punish the defendant
Quote
A price estimate given to the potential consumer as he/she decides to which company a formal application
will be submitted. Company may be legally bound to honor this quote in some jurisdictions and/or lines
of business
Rate
The pricing factor upon which the insurance buyer's premium is based
Regulation
Supervision of business practices by a governmental entity
Rehabilitation
(1) Restoration of a totally disabled person to a meaningful occupation, (2) a provision in some long- term
disability policies that provides for continuation of benefits or other financial assistance while a totally
disabled insured is retraining or attempting to resume productive employment
Reinstatement
The resumption of coverage under a policy which has lapsed
Reinsurance
(1) Assumption by one insurance company of all or part of a risk undertaken by another insurance
company (2) The acceptance by one or more insurers, called reinsurers, of a portion of the risk
underwritten by another insurer who has contracted for the entire coverage (3) The purchase of insurance
by an insurance company from another insurance company (reinsurer) to provide it protection against
large losses on cases it has already insured
Reinsurance Facility
An alternative mechanism to service those insurers that cannot obtain insurance in the voluntary market.
Premiums and losses for the business that is ceded to the facility are pooled and all insurers share
according to their proportion of the voluntary market
Renewal
Continuance of coverage under a policy beyond its original term by the insurer's acceptance of the
premium for a new policy term
Replacement
The substitution of health insurance coverage from one policy contract to another
Replacement Cost
The cost to repair or replace property at construction costs prevailing at time of loss; the cost to repair or
rebuild property without considering depreciation. (See Actual Cash Value)
Reserve
(1) An amount representing liabilities kept by an insurer to provide for future commitments under policies
outstanding (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not
an extra fund
Retention
(1) The net amount of risk retained by an insurance company for its own account or that of specified
others, and not reinsured (2) The amount of the risk kept for oneself, as opposed to the amount it insures
(or reinsures) with another
Rider
(1) A document which amends the policy or certificate. It may increase or decrease benefits, waive the
condition of coverage or in any other way amend the original contract (2) A special policy provision or
group of provisions that may be added to a policy to expand or limit the benefits otherwise payable (3) A
document that modifies the policy. It may increase or decrease benefits, waive a condition or coverage,
or in any other way amend the original contract
Risk
(1) The chance of loss. Also used to refer to the insured or to property covered by a policy (2) Any chance
of loss (3) A term used to refer to a person or the peril insured
Risk Classification
The process by which a company decides how its premium rates for life insurance should differ according
to the risk characteristics of individuals insured (e.g., age, occupation, sex, state of health) and then
applies the resulting rules to individual applications (See: Underwriting)
Risk Control
Any conscious action (or decision not to act) intended to reduce the frequency, severity, or
unpredictability of accidental losses
Risk Retention Group

An alternative form of insurance in which members of a similar profession or business band together to
self insure their risks
Robbery
The taking of property from a person by force or threat of violence
Self-Insured Retention
A form of risk financing through which a firm assumes all or a part of its own losses
Special Damages
Compensation awarded for actual economic losses, such as medical expenses and lost wages (See general
damages)
Special Risk Insurance

Coverage for risks or hazards of a special or unusual nature
Standard Risk
A person who, according to a company's underwriting standards, is entitled to purchase insurance
protection without extra rating or special restrictions
State Fund
A fund set up by a state government to provide a specific line or lines of insurance. Some state permit
private insurers to compete with the state fund
State Insurance Department

A department of a state government whose duty is to regulate the business of insurance and give the
public information on insurance
Stock Exchange
An organization that provides a facility for buyers and sellers of listed securities to come together to make
grades in those securities
Stockholder (or shareholder)

A person who owns shares of stock in a corporation
Strict Liability
Liability for damages even though faults or negligence cannot be proven
Subrogation
Process by which one insurance company seeks reimbursement from another company or person for a
claim it has already paid
Surety Bond
An agreement providing for monetary compensation in the event of a failure to perform specified acts
within a stated period. The surety company, for example, becomes responsible for fulfillment of a contract
if the contractor defaults
Surplus
The amount by which the value of an insurer's assets exceeds its liabilities, i.e., the net worth of an
insurance company
Surplus Lines
(1) A risk or a part of a risk for which there is no normal insurance market available. (2) Insurance written
by non-admitted insurance companies
Third Party
The claimant under a liability policy. So called because the person making the claim is not one of the two
parties, insured and insurer, to the insurance contract
Threshold (No-Fault)
The point, measured in money, time or other ways, beyond which tort liability can be established. Until
that point is reached, reparations must be paid within the provisions of the no-fault plan, with no recourse
to the courts
Tornado
A whirling wind over land, accompanied by a funnel-shaped cloud. It is usually very violent and destructive
in a narrow path, often for many miles
Tort
A civil wrong, other than a breach of contract, for which a court of law will afford legal relief, i.e. harming
another by an act of negligence in driving an auto
Treaty
An agreement between a reinsurer and a ceding insurer setting forth details of the reinsurance
arrangement
Trust
A legal instrument allowing one party to control property for the benefit of another
Underwriter
1) a company that receives the premiums and accepts responsibility for the fulfillment of the policy
contract; 2) the company employee who decides whether or not the company should assume a particular
risk; 3) the agent who sells the policy
Underwriting
The process of selecting risks for insurance and determining in what amounts and on what terms the
insurance company will accept the risk
Unearned Premium
The portion of a premium that a company has collected but has yet to earn because the policy still has
unexpired time to run
Underwriting Result
See Underwriting Profit or Loss
Underwriting Profit or Loss

The amount of money which the insurance company gain or lose as a result of its insurance operations, it
excludes investment transactions and federal income taxes
Uninsured/Underinsured Motorist Coverage

A form of insurance that pays the policy holder and passengers in his/her car for bodily injury caused by
the owner or operator of an uninsured or inadequately insured automobile
Verbal Threshold
In no-fault auto insurance states with a verbal threshold, victims are allowed to sue in tort only if their
injuries meet certain verbal descriptions of the types of injuries that render one eligible to recover for
pain and suffering
Voluntary Market
The market where a person seeking insurance obtains it with no help from the state, through an insurer
of his or her own selection
Waiver
An agreement attached to a policy which exempts from coverage certain disabilities or injuries that
otherwise would be covered by the policy
Workers Compensation
A system established under state law that provides payments, without regard to fault, to employees
injured in the course and scope of their employment
Workers' Compensation Insurance

Insurance against liability imposed on certain employers to pay benefits and furnish care to employees
injured, and to pay benefits to dependents of employees killed in the course of or arising out of their
employment
Asset-Backed Security (ABS)

Asset-backed securities, backed by pools of mortgage loans or other types of securitizable cash flow
generating assets, are sold to investors who then receive payments based on the cash flows generated by
the assets in the underlying pool.
Asset-based loan
Asset based loans allow the borrower to pledge a specific asset or a combination of assets, such as
inventory, machinery or equipment, as collateral to cover a loan.
Balloon payments
Balloon payment is a large payment at maturity that includes the repayment of the principal and in certain
cases all the accumulated interest.
Basel Accords
The Basel Accords (Basel I Accord, the Market Risk Amendment, and the Basel II Accord) are the
cornerstones of international risk-based banking regulation, the results of a collaborative attempt by
banking regulators from major developed countries to create a globally valid and widely applicable
framework for banks and bank risk management
Call option
A call option gives its holder the right, but not the obligation, to buy a specified asset at a specified price
at some future date.
Capital adequacy
Capital adequacy is achieved when a bank’s capital ratio meets or exceeds the minimum capital ratio,
which under the Basel Accords is 8% of risk weighted assets and can be satisfied with Tier 1,Tier 2, and
Tier 3 capital.Tier 1 capital has to account for at least 4% of risk-weighted assets; the remainder can be
satisfied through Tier 2 and, in the case of market risk capital,Tier 3 capital. National banking regulators
can deviate from these minimum capital adequacy ratios.
Capital ratio
Capital ratio is the relationship between Risk-Weighted Assets and regulatory capital.
Charged-off loan
A charged-off loan is a loan that has been removed from the bank’s financial statements because the bank
believes that it will collect nothing of the loan from the borrower.
Covenant
A covenant is an agreement that requires one party to refrain from or engage in specified actions and is
imposed on the borrower by a lender to prevent a potential deterioration in the borrower’s financial and
business condition
Credit score
A credit score is a number that relates the relative strength of each borrower to a larger group of
borrowers and indicates the relative chance of default.
Derivative
A (financial) derivative is an instrument whose value “derives” from the value of a related underlying
financial asset or commodity , and includes swaps, options, forwards, and futures.
Five Cs of Credit
The Five Cs of Credit is an abbreviation of a widely used credit analysis framework that focuses on the
character of borrower, the capital provided by the borrower, the business, economic and other conditions
faced by the borrower, the financial and legal capacity of the borrower, and the various types of collateral
and other types of credit support mechanisms offered by the borrower.
Forward
A forward (contract), a derivative, is a nontransferable contract that defines the delivery of specified asset
(e.g., commodities, currencies, bonds or stocks), at a specified price, at a specified quantity, on a specified
future date.
Futures
A futures (contract), a derivative, is a standardized and transferable contract traded on an exchange that
defines the delivery of specified asset (e.g., commodities, currencies, bonds, or stocks), at a specified
price, at a specified quantity, on a specified future date
Interest rate risk in the banking book

The interest rate risk in the banking book reflects the fact that bank assets and liabilities have different
maturities, are priced off different interest rates, and are repriced at different points in time.
Internal ratings-based (IRB) approach

The Internal Ratings Based approach to determine the regulatory minimum capital requirement for credit
risk uses the bank’s own information. IRB includes two different procedures that have methodological
differences to forecast the different risk factors.
Loan-to-value, LTV, ratio

Loan-to-value ratio is the ratio of the loan and the collateral supporting the loan.
Off-balance-sheet activity
Off-balance-sheet activities are not recorded on the balance sheet, and include asset, debt, or financing-
related activities such as derivatives or loan commitments and other contingent exposures that could pose
a risk to the bank.
Over-the-counter (OTC)market
The over-the-counter market is a decentralized market without a physical marketplace, where both
standardized and nonstandardized securities and other financial instruments are traded.
Pillars 1, 2, and 3 of the Basel II Accord

The Basel II Accord consists of three pillars. Pillar 1 focuses on minimum capital requirements for the three
major risks bank face: credit risk, operational risk, and market risk. Pillar 2 focuses on supervisory review
and processes for capital adequacy. Pillar 3 focuses on market discipline and transparency.
Repurchase agreement or repo

A repurchase agreement, repo, is a contract between two parties in which one party sells the other a
security at a specified price with the obligation to buy the security back at a later date for another specified
price; they are widely used by central banks to provide support to meet a bank's short-term liquidity.
Risk-weighted assets
Risk-weighted assets equal the sum of various financial assets multiplied by their respective risk-weights
and off-balance-sheet items weighted for their credit risk according to the regulatory requirements
outlined by banking regulators and supervisors.
Scenario analysis
Scenario analysis, or what-if analysis, assesses the potential outcome of various scenarios by setting up
several possible situations and analyzing the potential outcomes of each situation.
Securitization
Securitization is a process where relatively illiquid cash flow producing assets (e.g., mortgages, credit
cards, and loans) are pooled into a portfolio, and the purchase of these assets in the portfolio is financed
by securities issued to investors, who then share the cash flows generated by the portfolio.
Standardized approach
The Standardized Approach to calculate the bank’s credit and market risk capital is the simplest approach
outlined in the Basel II Accord for these risks. For operational risk, this is an intermediate level approach.
Supervisory review
Supervisory review is a process that national bank regulatory or supervisory authorities use to evaluate a
bank’s capital adequacy in relation to the risks and capital the bank has.
Tier 1 capital
Tier 1 Capital in the Basel Accords is the core capital of the bank and refers to equity capital and to certain
types of disclosed reserves, as well as particular debt/ equity hybrid securities
Tier 2 capital
Tier 2 Capital in the Basel Accords is supplementary capital and refers to undisclosed and certain disclosed
reserves, general provisions, general loan loss reserves, hybrid capital instruments, and subordinated
debt.
Tier 3 capital
Tier 3 Capital in the Basel Accords is a specific type of supplementary capital and refers to certain type of
short-term debt that can partially satisfy regulatory minimum capital requirements for market risk only.
Trading book
The trading book of a bank is the portfolio of various positions in financial assets, instruments, and
commodities that a bank holds with the intention to invest, to trade, or to hedge other positions in the
trading book.
Written-down loan
A written-down loan is a loan that is past due, and the bank has made a determination that it will not be
able to recover fully the amount it has lent to the borrower.
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FIN625 (BNK625): Credit & Risk Management MCQs (/mcqs/233-mcqs-fin625bnk625-credit-a-risk-management.html)
FIN625-MCQ Solved with Ref-Mehreen Humayun-04
Virtual University MCQs BANK - MCQs Collection from Online Quizzes
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FIN625-Quiz#01
Lesson 01-15
Shared by Ali Ahmad
Solved by Mehreen Humayun
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LECTURE – 04
Which of the following strategies should reflect the bank's tolerance for risk and level of profitability, the bank expects to achieve for
incurring various credit risks?
LECTURE – 05
The board of directors should have responsibility for approving and periodically reviewing the credit risk strategy and significant credit risk
policies of the bank. The strategy should reflect the bank's tolerance for risk and the level of profitability the bank expects to achieve for
incurring various credit risks.
Shares

LECTURE – 08
Limits should also be established for particular industries or economic sectors, geographic regions and specific products. Such limits are
needed in all areas of the bank’s activities that involve credit risk. These limits will help to ensure that the bank’s credit-granting activities are
adequately diversified.
Which of the following organizations often determines the process design in the risk analysis units?
Sales organization
LECTURE – 13
Poor credit history
LECTURE – 03
Adverse credit history also called sub-prime credit history, non-status credit history, impaired credit history, poor credit history, and bad credit
history, is a negative credit rating.
Which of the following is an important way to reduce credit risks, especially in Inter-bank transaction?
Netting agreements
Option agreements
LECTURE
Shares – 07
Netting agreements are an important way to reduce credit risks, especially in Inter-bank transactions.
Which of the following exposures include margin and collateral agreements with periodic margin calls, liquidity back-up lines,
commitments and some letters of credit, and some unwind provisions of securitizations?
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
Liquidity-sensitive exposures include margin and collateral agreements with periodic margin calls, liquidity back-up lines, commitments and
some letters of credit, and some unwind provisions of securitizations.
Which of the following is the process of assessing risks and taking steps to either eliminate or to reduce them (as far as is
reasonably practicable) by introducing control measures?
Risk management
Credit management
Risk management is the process of assessing risks and taking steps to either eliminate or to reduce them by introducing control measures. Its
purpose is to generate ideas and promote good practice for those involved in the business of risk management.
Which of the following risks focuses more specifically on a borrower’s capacity to obtain the foreign exchange necessary to service
its cross-border debt and other contractual obligations?
Transfer risk
Systematic risk
LECTURE – 07
Transfer risk focuses more specifically on a borrower’s capacity to obtain the foreign exchange necessary to service its cross-border debt and
other contractual obligations.
Which of the following exposures include foreign exchange and financial derivative contracts?
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
To maximize a bank's risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters is the goal of
which of the following?
LECTURE – 05
The goal of credit risk management is to maximize a bank's risk-adjusted rate of return by maintaining credit risk exposure within acceptable
parameters.
Shares
Which of the following audits should also be used to identify areas of weakness in the credit administration process, policies and
procedures as well as any exceptions to policies, procedures and limits?
LECTURE – 11
Internal audits of the credit risk processes should be conducted on a periodic basis to determine that credit activities are in compliance with the
bank’s credit policies and procedures, that credits are authorized within the guidelines established by the bank’s board of directors and that the
existence, quality and value of individual credits are accurately being reported to senior management.
Who, among the following, should take particular note of whether bank management recognizes problem credits at an early stage
and takes the appropriate actions?
Top level managers
Low level managers
Supervisors
LECTURE – 11
Supervisors should take particular note of whether bank management recognises problem credits at an early stage and takes the appropriate
actions.
LECTURE – 09
Credit administration is a critical element in maintaining the safety and soundness of a bank.
Which of the following instruments are viewed as relatively sophisticated instruments, requiring some effort by both the bank and
the customer to ensure that the contract is well understood by the customer?
Derivative function
Linear derivative
LECTURE – 12
Most market-sensitive instruments, such as financial derivatives, are viewed as relatively sophisticated instruments, requiring some effort by
both the bank and the customer to ensure that the contract is well understood by the customer.
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FIN625-solved MCQ shared by Asif Lesson 1-40
FIN625-solved MCQ shared by Asif Lesson 1-40
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FIN625
Lesson 01-40
Shared by Asif
Insurance contracts have how many types of exclusions?

Four
Three
Two
One
LECTURE – 35
Insurance contracts contain three major types of exclusions
– Excluded perils
– Excluded losses
– Excluded property
Which of the following provides medical care, cash benefits, survivor benefits, and rehabilitation services to workers who are
injured or die from job-related accidents or disease?
Workers compensation insurance

Commercial property coverage
Equipment breakdown insurance
Commercial general liability insurance
LECTURE – 40
Workers compensation insurance provides medical care, cash benefits, survivor benefits, and rehabilitation services to workers
who are injured or die from job-related accidents or disease.
How many groups are eligible for medical payments coverage?
Four
Three
Two
One
LECTURE – 37
Medical payments coverage covers all reasonable medical and funeral expenses incurred by an insured in an accident. Two
groups are eligible for coverage:
The named insured and family members are covered
Other persons occupying a covered auto are covered
Shares
Which of the following is the condition that increases the chance of loss?
Hazard
Peril
Indirect (consequential) loss
Direct loss
LECTURE – 31
A hazard is a condition that increases the chance of loss
Credit administration, individuals perform all of the following functions, EXCEPT:
Custody of key documents

Wiring out funds
Entering limits into the computer database
Report to customers
LECTURE – 09
Where individuals perform such sensitive functions as custody of key documents, wiring out funds, or entering limits into the
computer database, they should report to managers who are independent of the business origination and credit approval
processes.
Which of the following recorded as an asset by the originating bank must also be treated as securitization exposures?
Deposit accounts
Letter-of-credit
Cash collateral accounts
Rights money
LECTURE – 26
Reserve accounts, such as cash collateral accounts, recorded as an asset by the originating bank must also be treated as
securitization exposures.
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FIN625-solved MCQ shared by Adil Ghous Lesson 1-42
FIN625-solved MCQ shared by Adil Ghous Lesson 1-42
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FIN625-Quiz#04
Lesson 01-42
Shared by Adil Ghous
This email address is being protected from spambots. You need JavaScript enabled to view it. (mailto:<span id=)">vuzs_banking@googlegroups.com
(mailto:vuzs_banking@googlegroups.com) (mailto:<span id=)
Which of the following is charged by the lenders from the borrowers for the privilege of giving loan?
Inflation rate
Exchange rate
Interest rate
Aggregate price level
Which of the following are contingent claim contr (http://www.vuzs.info)acts that rely on pricing inversion?
Insurance policies
Property and casualty policies
Liability policies
Income policies
LECTURE – 42
Insurance policies are contingent claim contracts that rely on pricing Inversion.
The organizational structure of risk analysis is usually based on a five-level organizational model. Which of the following is NOT a
level in this model?
Division manager
Associates
Group leader
Specialists
Ref:
The organizational structure of risk analysis is usually based on a five-level organizational model 60
Under which of the following insurance

should pay for high seve (http://www.vuzs.info)rity losses; small losses can be budgeted out of the person’s income?
Uncertainty principle
Large loss principle
Dependency inversion principle
Design principles
Shares
LECTURE – 36
Under the large loss principle, insurance should pay for high severity losses; small losses can be budgeted out of the person’s
income.
Which of the following is the probability that market interest rates will change and cause it to have lower profits or a decrease in the
value of its equity?
Credit risk
Market risk
Strategic risk
Interest rate risk
General crime coverage form (discovery version and loss-sustained version) (http://www.vuzs.info)
REFERENCE:
Which of the following refers to the available limits of unde (http://www.vuzs.info)rlying insurance listed in the declarations?
Loan modification
Ultimate net loss
Retained limit
Partial claim option
LECTURE – 40
The retained limit refers to (1) the available limits of underlying insurance listed in the declarations, or (2) the self-insurance
retention.
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FIN625-Quiz#01
Lesson 01-15
Shared by Muhammad Adil Ghous
Question # 1 of 15
Loss given default
Exposure at default
Maturity
LECTURE – 14
Question # 2 of 15
Which of the following should ensure that granting of credit exceeding certain predetermined levels receive prompt management attention?
Multi-user systems
Limit systems
Drain back systems
Embedded systems
LECTURE – 11
Limit systems should ensure that granting of credit exceeding certain predetermined levels receive prompt management attention.
Question
Shares # 3 of 15
Which of the following strategies should reflect the bank's tolerance for risk and level of profitability, the bank expects to achieve for incurring
various credit risks?
LECTURE – 05
The board of directors should have responsibility for approving and periodically reviewing the credit risk strategy and significant credit risk
policies of the bank. The strategy should reflect the bank's tolerance for risk and the level of profitability the bank expects to achieve for
incurring various credit risks.
Question # 4 of 15

LECTURE – 08
Question # 5 of 15
The introduction of mostly automated credit decisions particularly entails a considerable change in the user interface in which of the following
applications?
Operations
Sales
Productions
Quality
LECTURE – 15
Changes
Shares in processes, in particular the introduction of mostly automated credit decisions, entail a considerable change in the user interface in
sales applications.
Question # 6 of 15
The ways through which banks avoid association with individuals involved in fraudulent activities and other crimes include all of the following,
EXCEPT:
LECTURE – 07
In particular, strict policies must be in place to avoid association with individuals involved in fraudulent activities and other crimes. This can be
achieved through a number of ways, including asking for references from known parties, accessing credit registries, and becoming familiar
with individuals responsible for managing a company and checking their personal references and financial condition.
Question # 7 of 15
Avoid making loans to borrowers from a broad spectrum and to specialize geographically and in specific industries
Add a mark-up to the cost of funds for a specific borrower based on the borrower's credit history
All loans within the conforming loan limit at the time of origination will continue to be deemed
Ref:
All loans that were within the conforming loan limit at the time of origination will continue to be deemed within the conforming loan limit during
the remaining lives of such loans, regardless of whether the loan limit for any subsequent year declines to a level below the limit at the time of
origination.
Question # 8 of 15
Which of the following is affected by the collateralized portion as well as the cost of selling the collateral?
Loss given default
Exposure at default
Maturity
LECTURE – 13
The loss given default is affected by the collateralized portion as well as the cost of selling the collateral.
Question # 9 of 15
Shares
LECTURE – 09
Question # 10 of 15
Five
Four
Three
Two
LECTURE – 14
Question # 11 of 15
Which of the following exposures include margin and collateral agreements with periodic margin calls, liquidity back-up lines, commitments
and some letters of credit, and some unwind provisions of securitizations?
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
Liquidity-sensitive exposures include margin and collateral agreements with periodic margin calls, liquidity back-up lines, commitments and
some letters of credit, and some unwind provisions of securitizations.
Question # 12 of 15
Credit reputation
Credit risk
Credit repair
Credit union
LECTURE – 03
The term "credit reputation" can either be used synonymous to credit history or to credit score.
Question # 13 of 15
How many factors should be taken into account in the segmentation of credit approval processes?
Three
Four
Five
Six
LECTURE – 13
Thus, four factors should be taken into account in the segmentation of credit approval processes:
1. Type of borrower
Shares
Question # 14 of 15
Which of the following risks encompasses the entire spectrum of risks arising from the economic, political and social environments of a foreign
country that may have potential consequences for foreigners’ debt and equity investments in that country?
Transfer risk
Systematic risk
LECTURE – 07
Country or sovereign risk encompasses the entire spectrum of risks arising from the economic, political and social environments of a foreign
country that may have potential consequences for foreigners’ debt and equity investments in that country.
Question # 15 of 15
Which of the following policies reward unacceptable behavior such as generating short-term profits while deviating from credit policies or
exceeding established limits, weaken the bank's credit processes?
Regulatory policies
LECTURE – 06
Remuneration policies that reward unacceptable behavior such as generating short-term profits while deviating from credit policies or
exceeding established limits, weaken the bank's credit processes.
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FIN625-Quiz#01
Lesson 01-15
Shared by Shahbaz Anwar Siddiqui
Question # 1 of 15
Banks have new possibilities to manage credit concentrations and other portfolio issues including all of the following mechanisms EXCEPT:
Loan sales
Credit derivatives
LECTURE – 10
Banks have new possibilities to manage credit concentrations and other portfolio issues. These include such mechanisms as loan sales, credit
derivatives, securitization programs and other secondary loan markets.
Question # 2 of 15
As part of their ongoing activities, whose responsibility is to assess the system in place at individual bank to identify, measure, monitor and
control credit risk?
Top level managers
Low level managers
Supervisors
LECTURE – 11
Supervisors should require that banks have an effective system in place to identify, measure, monitor and control credit risk as part of an
overall approach to risk management.
Question # 3 of 15
Shares
3 Bureau Credit Report

View your latest Credit Scores from All 3 bureaus in 60 seconds for $0!
freescoreonline.com OPEN

LECTURE – 08
Question # 4 of 15
Profitability
Capital expenditure
Liquidity
People management
Question # 5 of 15
Loss given default
Exposure at default
Maturity
LECTURE – 14
Question # 6 of 15
Which of the following is a statistical method of assessing the credit risk of a loan applicant?
Identity score
Ipsative score
Standard score
Credit
Shares score
Ref:
Credit scoring, also known as FICO scoring, is a statistical method of assessing the credit risk of a loan applicant.
Question # 7 of 15
Which of the following holds your credit history, such as your first bank account, any credit cards you have, or any applications for finance you
may have made?
The Treasury Bureau
LECTURE – 02
A credit bureau (U.S.) or credit reference agency (UK) is a company that provides consumer credit information on individual borrowers.
Question # 8 of 15
Loans to certain industry sectors, asset securitization, customer-written options, credit derivatives, credit-linked notes, are examples of which
of the following?
LECTURE – 07
Banks must develop a clear understanding of the credit risks involved in more complex credit-granting activities (for example, loans to certain
industry sectors, asset securitization, customer-written options, credit derivatives, credit-linked notes).
Question # 9 of 15
Five
Four
Three
Two
LECTURE – 14
Question # 10 of 15
Who, among the following, should also consider the relationships between credit risk and other risks?
Agents
Banks
Partners
Government
LECTURE – 05
Shares
Question # 11 of 15
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
Question # 12 of 15
Ref:
All loans that were within the conforming loan limit at the time of origination will continue to be deemed within the conforming loan limit during
the remaining lives of such loans, regardless of whether the loan limit for any subsequent year declines to a level below the limit at the time of
origination.
Question # 13 of 15
Which of the following risks encompasses the entire spectrum of risks arising from the economic, political and social environments of a foreign
country that may have potential consequences for foreigners’ debt and equity investments in that country?
Transfer risk
Systematic risk
LECTURE – 07
Country or sovereign risk encompasses the entire spectrum of risks arising from the economic, political and social environments of a foreign
country that may have potential consequences for foreigners’ debt and equity investments in that country.
Question # 14 of 15

It is
Shares the risk that counter-party may not meet one’s obligation in a contract
LECTURE – 08
Question # 15 of 15
Netting agreements
Option agreements
LECTURE – 07
Netting agreements are an important way to reduce credit risks, especially in Inter-bank transactions.
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FIN625 Quiz1 (solved shared by Shahbaz Anwar)
FIN625 Quiz1 (solved shared by Shahbaz Anwar)
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Question # 1 of 15 ( Start time: 03:22:50 PM ) Total M - 1

Banks have new possibilities to manage credit concentrations and other portfolio issues including all of the following mechanisms EXCEPT:
Loan sales
Credit derivatives

As part of their ongoing activities, whose responsibility is to assess the system in place at individual bank to identify, measure, monitor and control credit
risk?
Top level managers
Low level managers
Supervisors


Profitability
Capital expenditure
Liquidity
People management

Loss given default
Exposure at default
Maturity
Identity score
Ipsative score
Standard score
Credit score
Shares
Which of the following holds your credit history, such as your first bank account, any credit cards you have, or any applications for finance you may have
made?
The Treasury Bureau

Loans to certain industry sectors, asset securitization, customer-written options, credit derivatives, credit-linked notes, are examples of which of the
following?

Five
Four
Three
Two

Who, among the following, should also consider the relationships between credit risk and other risks?
Agents
Banks
Partners
Government

Liquidity sensitive
Market sensitive
Debt sensitive


Which of the following risks encompasses the entire spectrum of risks arising from the economic, political and social environments of a foreign country that
may have potential consequences for foreigners’ debt and equity investments in that country?
Transfer risk
Systematic risk


Netting agreements
Option agreements
Shares
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FIN625 Quiz#03 Lesson 1-23 Solved By Shahbaz Anwar Siddiqui
FIN625 Quiz#03 Lesson 1-23 Solved By Shahbaz Anwar Siddiqui
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FIN625-Quiz#03
Lesson 01-23
Shared & solved by Shahbaz Anwar Siddiqui
Reference by Mehreen Humayun
Question # 1 of 15
Which of the following risks focuses more specifically on a borrower’s capacity to obtain the foreign exchange necessary to service
its cross-border debt and other contractual obligations?
Transfer risk
Shares
Systematic risk
LECTURE – 07
Transfer risk focuses more specifically on a borrower’s capacity to obtain the foreign exchange necessary to service its cross-
border debt and other contractual obligations.
Question # 2 of 15
Risk management
Credit management
Risk management is the process of assessing risks and taking steps to either eliminate or to reduce them by introducing control
measures. Its purpose is to generate ideas and promote good practice for those involved in the business of risk management.
This email address is being protected from spambots. You need JavaScript enabled to view it.">vuzs_banking@googlegroups.com
Question # 3 of 15
What does AFDB stands for?
Asian Foil Deflector Beanie
African Development Bank
Apple Foil Deflector Beanie
Afghanistan Development Bank
LECTURE – 21
The African Development Bank (AFDB).
Question # 4 of 15
The definition of which of the following is an important pre-requisite to handle credit approval processes in a manner which is
specific to the risk involved and is efficient?
Shares
Market segments
Profit segments
Loss segments
Exposure segments
LECTURE – 15
The definition of exposure segments is an important prerequisite to handle credit approval processes in a manner which is specific
to the risk involved and efficient.
Question # 5 of 15
In practice, the credit applications show fields that help in documenting credit assessment factors. All of the following are the
factors usually distinguished, EXCEPT:
Market situation
Economic situation
Project evaluation
LECTURE – 18
The credit applications show fields that help document these factors. Five categories are usually distinguished:
1. Legal situation
2. Market situation
Question # 6 of 15

Shares
LECTURE – 05
The board of directors should have responsibility for approving and periodically reviewing the credit risk strategy and significant
credit risk policies of the bank. The strategy should reflect the bank's tolerance for risk and the level of profitability the bank
Question # 7 of 15
Which of the following organizations often determines the process design in the risk analysis units?
Sales organization
LECTURE – 13
Question # 8 of 15
Identity score
Ipsative score
Standard score
Credit score
Credit scoring, also known as FICO scoring, is a statistical method of assessing the credit risk of a loan applicant.
Question # 9 of 15
Which of the following institutions supplies information to each creditor but does not give or deny credit?
Shares
The Treasury Bureau
The Credit Bureau
Question # 10 of 15
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
Question # 11 of 15
Which of the following describes the power to incur direct loan obligations or to make loan guarantee commitments?
Credit report
Credit authority
Credit score
Credit repair
The term “credit authority” means authority to incur direct loan obligations or to incur primary loan guarantee commitments.
Question # 12 of 15
Which of the following should include all of the information necessary to ascertain the current financial condition of the borrower as
well as sufficient information to track the decisions made and the history of the credit?
Shares
Credit score
Credit identity
Credit file
LECTURE – 09
The credit files should include all of the information necessary to ascertain the current financial condition of the borrower or
counterparty as well as sufficient information to track the decisions made and the history of the credit.
Question # 13 of 15
As an exception, what will be the conversion factor applied to commitments that are unconditionally cancelable, or that effectively
provide for automatic cancellation, due to deterioration in a borrower’s creditworthiness, at any time by the bank without prior
notice, as proposed in the June 1999 Consultative Paper?
0%
10%
20%
30%
As an exception, a 0% conversion factor will be applied to commitments that are unconditionally cancellable, or that effectively
provide for automatic cancellation, due to deterioration in a borrower’s creditworthiness, at any time by the bank without prior
notice.
Question # 14 of 15

LECTURE – 09
Shares
Question # 15 of 15
Which of the following should be defined and weighted specifically for each segment in plausibility check?
Risk
Profit
Criteria
Market
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FIN625-Quiz#03
Lesson 01-23
Shared & solved by Mehreen Humayun
Question # 1 of 15
What will be the credit conversion factor for commitments with original maturity over one year as proposed in the June 1999
Consultative Paper?
Continue to be 60%
Continue to be 50%
Continue to be 40%
Continue to be 30%
LECTURE – 22
The credit conversion factor for commitments with original maturity over one year will continue to be 50%.
Question # 2 of 15
Surety ship
Collateral promise
LECTURE – 18
a. surety ship
Question # 3 of 15
One
Two
Three
Four
LECTURE – 17
Shares
Question # 4 of 15
Which of the following, for groups of companies, should be designed in a manner, specific to the risk involved, efficient and should
aim to focus the review on actual risk-bearer?
Credit score
Credit approval
Credit history
LECTURE – 14
Credit approval for groups of companies should be designed in a manner which is specific to the risk involved and efficient and
should aim to focus the review on the actual risk-bearer, that (natural or legal) person whose legal and economic situation
ultimately determines the ability to fulfill the obligations under the credit agreement.
Question # 5 of 15
Which of the following policies reward unacceptable behavior such as generating short-term profits while deviating from credit
policies or exceeding established limits, weaken the bank's credit processes?
LECTURE – 06
Remuneration policies that reward unacceptable behavior such as generating short-term profits while deviating from credit policies
or exceeding established limits, weaken the bank's credit processes.
Question # 6 of 15
Five
Four
Three
Two
LECTURE – 14
Question # 7 of 15
Ref:
All loans that were within the conforming loan limit at the time of origination will continue to be deemed within the conforming loan
limit during the remaining lives of such loans, regardless of whether the loan limit for any subsequent year declines to a level below
Question
Shares # 8 of 15
Which of the following is a critical element in maintaining the safety and soundness of a bank?
Credit authority
Credit report
Credit score
LECTURE – 09
Question # 9 of 15
Investment
Retail
Project
Market
LECTURE – 14
Question # 10 of 15

The activities covered in a credit history or credit report include, but are not limited to, a consumer’s payment patterns, borrowing
patterns, and credit balances, as well as credit inquiries by potential creditors.
Question # 11 of 15
The strong legal position resulting from which of the following collateral, may warrant special treatment of the relevant forms of
finance?
Equity and leasing finance

Mortgage and equity finance
Mortgage and leasing finance
Venture capital and equity finance
LECTURE – 13
Mortgage finance and leasing are those forms of finance which often give the lender a substantial degree of control over the asset
being financed. The strong legal position resulting from such collateral may warrant special treatment of the relevant forms of
finance.
Question # 12 of 15
Poor credit history

LECTURE – 03
Adverse credit history also called sub-prime credit history, non-status credit history, impaired credit history, poor credit history, and
bad credit history, is a negative credit rating.

Credit reputation
Credit risk
Credit repair
Credit union
LECTURE – 03
Question # 14 of 15
Yellow criteria
Red criteria
Green criteria
Black criteria
LECTURE – 16
Red criteria, which, if fulfilled, lead to an outright rejection of the exposure (also referred to as knock-out criteria).
Question # 15 of 15
The
Shares organizational structure of risk analysis is usually based on a five-level organizational model. Which of the following is NOT a
level in this model?
Division manager
Associates
Group leader
Specialists
Ref:
The organizational structure of risk analysis is usually based on a five-level organizational model 60
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FIN625-Quiz#03
Lesson 01-23
Shared by Asia Kanwal
Question # 1 of 15
What does ADB stands for?
Asian Desktop Bus
Apple Dictionary of Biography
Asian Development Bank
Antonio Development Bank
LECTURE – 21
The Asian Development Bank (ADB).
Question # 2 of 15
Poor credit history

LECTURE – 03
Adverse credit history also called sub-prime credit history, non-status credit history, impaired credit history, poor credit history, and
bad credit history, is a negative credit rating.
Question # 3 of 15

LECTURE – 02
The activities covered in a credit history or credit report include, but are not limited to, a consumer’s payment patterns, borrowing
patterns, and credit balances, as well as credit inquiries by potential creditors.
Question # 4 of 15
Which
Shares of the following processes should be conducted on a periodic basis to determine that credit activities are in compliance with
the bank’s credit policies and procedures?

LECTURE – 11
Internal audits of the credit risk processes should be conducted on a periodic basis to determine that credit activities are in
compliance with the bank’s credit policies and procedures, that credits are authorized within the guidelines established by the
bank’s board of directors and that the existence, quality and value of individual credits are accurately being reported to senior
management.
Question # 5 of 15
Who, among the following should consider setting prudential limits to restrict bank exposures to single borrower or groups of
connected counterparties?
Top level managers

Supervisors
Lower level managers
LECTURE – 06
Supervisors should consider setting prudential limits to restrict bank exposures to single borrowers or groups of connected
counterparties.
Question # 6 of 15
In addition to individual borrower data, many cases will require general information on the economic situation of a region or an
industry to allow a comprehensive assessment of credit application; here, the bank can make use of which of the following?
Higher sources
Internal sources
External sources
Lower sources
LECTURE – 16
In addition to individual borrower data, many cases will require general information on the economic situation of a region or an
industry to allow a comprehensive assessment of credit application; here, the bank can make use of external sources.
Question # 7 of 15
Banks have new possibilities to manage credit concentrations and other portfolio issues including all of the following mechanisms
EXCEPT:
Loan sales
Credit derivatives
LECTURE – 10
Banks have new possibilities to manage credit concentrations and other portfolio issues. These include such mechanisms as loan
sales, credit derivatives, securitization programs and other secondary loan markets.
Question # 8 of 15
Which of the following is an important tool in monitoring and controlling credit risk?
Holistic rating
Interval rating
Internal risk rating
Analytical rating
LECTURE – 09
Internal risk ratings are an important tool in monitoring and controlling credit risk.
Question # 9 of 15
LECTURE – 21
Question # 10 of 15
Investment
Retail
Project
Market
LECTURE – 14
Shares
Question # 11 of 15
Which of the following exposures include margin and collateral agreements with periodic margin calls, liquidity back-up lines,
commitments and some letters of credit, and some unwind provisions of securitizations?
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
Liquidity-sensitive exposures include margin and collateral agreements with periodic margin calls, liquidity back-up lines,
commitments and some letters of credit, and some unwind provisions of securitizations.
Question # 12 of 15
Both the basic approach and the advanced Internal Ratings Based (IRB) approach require the calculation of which of the following
claim/pool of claims?
Loss given default

Exposure at default
Maturity
LECTURE – 19
Both the basic approach and the advanced IRB approach require the calculation of the probability of default (PD) of a claim/a pool
of claims.
Question # 13 of 15
Which of the following describes the power to incur direct loan obligations or to make loan guarantee commitments?
Credit report
Credit authority
Credit score
Credit repair
The term “credit authority” means authority to incur direct loan obligations or to incur primary loan guarantee commitments.
Question # 14 of 15
Loans to certain industry sectors, asset securitization, customer-written options, credit derivatives, credit-linked notes, are
examples of which of the following?

LECTURE – 07
Banks must develop a clear understanding of the credit risks involved in more complex credit-granting activities (for example,
loans to certain industry sectors, asset securitization, customer-written options, credit derivatives, credit-linked notes).
Question # 15 of 15
Risk management
Credit management
Risk management is the process of assessing risks and taking steps to either eliminate or to reduce them by introducing control
measures. Its purpose is to generate ideas and promote good practice for those involved in the business of risk management.
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FIN625-Quiz#03
Lesson 01-23
Shared by Muhammad Adil Ghous
Question # 1 of 15
All of the following are models for the standardized evaluation of credit assessment data, EXCEPT:
Heuristic models
Locust models
Causal models
Hybrid models
LECTURE – 17
Standardized Models of Data Evaluation (Rating Models)
These models can basically be divided into heuristic models, empirical statistical models, and causal models.
Question # 2 of 15
Which of the following maps into a risk weight lower than that which applies to an unrated claim?

LECTURE – 23
A high quality credit assessment (one which maps into a risk weight lower than that which applies to an unrated claim).
Question # 3 of 15
Which of the following is essential as effective measure for potential future exposure?
Elimination of meaningful limits

Establishment of meaningful limits
Establishment of insignificant limits
Elimination of significant limits
LECTURE – 08
Effective
Shares measures of potential future exposure are essential for the establishment of meaningful limits.
Question # 4 of 15
Which of the following institutions supplies information to each creditor but does not give or deny credit?
The Treasury Bureau

The Credit Bureau
Question # 5 of 15
In practice, the credit applications show fields that help in documenting credit assessment factors. All of the following are the
factors usually distinguished, EXCEPT:
Market situation
Economic situation
Project evaluation
LECTURE – 18
The credit applications show fields that help document these factors. Five categories are usually distinguished:
1. Legal situation
2. Market situation
Question # 6 of 15

LECTURE – 21
Question # 7 of 15
Concentrations occur when, among other things, a bank’s portfolio contains a high level of direct or indirect credits to all of the
following EXCEPT:
A single counterparty
A group of unrelated counterparties
A particular industry or economic sector
A type of credit facility
LECTURE – 10
Concentrations occur when, among other things, a bank’s portfolio contains a high level of direct or indirect credits to
(i) a single counterparty,
(ii) a group of connected counterparties,
(iii) a particular industry or economic sector,
(iv) a geographic region,
(v) an individual foreign country or a group of countries whose economies are strongly interrelated,
(vi) a type of credit facility, or
(vii) a type of security.
Question # 8 of 15
Credit reputation
Credit risk
Credit repair
Credit union
LECTURE – 03
Question # 9 of 15
Which of the following concern the amount of surplus capital of insurance companies included in the capital of the consolidated
group?
Qualitative disclosures
Quantitative disclosures
Shares Incidental disclosures
Accidental disclosures
Question # 10 of 15
Who, among the following, should take particular note of whether bank management recognizes problem credits at an early stage
and takes the appropriate actions?
Top level managers

Low level managers
Supervisors
LECTURE – 11
Supervisors should take particular note of whether bank management recognises problem credits at an early stage and takes the
appropriate actions.
Question # 11 of 15
LECTURE – 04
The CIB is legally empowered to collect credit information. The member financial institutions are bound to share their credit
information with the CIB.
Question # 12 of 15
Profitability
Capital expenditure
Liquidity
People management
Question # 13 of 15
Which of the following instruments are viewed as relatively sophisticated instruments, requiring some effort by both the bank and
the customer to ensure that the contract is well understood by the customer?
Derivative function
Linear derivative
LECTURE – 12
Most market-sensitive instruments, such as financial derivatives, are viewed as relatively sophisticated instruments, requiring
some effort by both the bank and the customer to ensure that the contract is well understood by the customer.
Question # 14 of 15
Who, among the followin, needs to recognize that the strategy and policies must cover many activities of the bank in which credit
exposure is a significant risk?
The credit manager

LECTURE – 06
The board needs to recognize that the strategy and policies must cover the many activities of the bank in which credit exposure is
a significant risk.
Question # 15 of 15
Both the basic approach and the advanced Internal Ratings Based (IRB) approach require the calculation of which of the following
claim/pool of claims?
Loss given default

Exposure at default
Maturity
LECTURE – 19
Both the basic approach and the advanced IRB approach require the calculation of the probability of default (PD) of a claim/a pool
of claims.
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FIN625-MCQ Solved by Shahbaz Anwar-09
FIN625-MCQ Solved by Shahbaz Anwar-09
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FIN625-Quiz#04
Lesson 01-42
Shared & solved by Shahbaz Anwar Siddiqui
(mailto:vuzs_banking@googlegroups.com)
Question # 1 of 15
Banks have new possibilities to manage credit concentrati (http://www.vuzs.info%20)ons and other portfolio issues including all of
the following mechanisms EXCEPT:
Loan sales
Credit derivatives
Question # 2 of 15
Of the following who is an insurer in which the salesperson is an employee of the insurer, not an independent contractor?
Exclusive agent
Independent agent
General agent
Direct writer (http://www.vuzs.info%20)
Question # 3 of 15

Identify potential losses (http://www.vuzs.info%20)
Question # 4 of 15
Which of the following refers to life insurance that is sold by mutual savings banks, over the phone or through web sites?
Savings Bank Life Insurance (http://www.vuzs.info%20)

Auto Insurance
Crime Insurance
Liability Insurance
Question
Shares # 5 of 15
Which of the following should ensure that granting of credit exceeding certain predetermined levels receive prompt management
attention?
Multi-user systems
Limit systems (http://www.vuzs.info%20)
Drain back systems
Embedded systems
Question # 6 of 15

The credit risk strategy (http://www.vuzs.info%20)
Question # 7 of 15
The introduction of mostly automated credit decisions particularly entails a considerable change in the user interface in which of
the following applications?
Operations
Sales (http://www.vuzs.info%20)
Productions
Quality
Question # 8 of 15

Identify potential losses (http://www.vuzs.info%20)
Question # 9 of 15

General crime coverage form (discovery version and loss-sustained version)
Question # 10 of 15
Question # 11 of 15
Which of the following should be defined and weighted specifically for each segment in plausibility check?
Risk
Profit
Criteria
Market
Question # 12 of 15
The ways through which banks avoid association with individuals involved in fraudulent activities and other crimes include all of the
following, EXCEPT:

Question # 13 of 15
Which of the following is the uncertainty in earnings due to misconduct by employees, computer errors, flooding, lightning strikes
and other similar events?
Shares
Capital risk
Liquidity risk
Operational risk
Interest rate risk
Question # 14 of 15
Which of the following is the risk of loss due to the failure of internal processes?
Off-balance-sheet risk
Firm-specific credit risk
Systematic credit risk
Operational risk
Question # 15 of 15
Which of the following is referred to (http://www.vuzs.info%20) as knockout criteria?
Yellow criteria
Red criteria
Green criteria
Black criteria
vuzs_banking@googlegroups.com (mailto:vuzs_banking@googlegroups.com)
LECTURE – 04
LECTURE – 05
The board of directors should have responsibility for approving and periodically reviewing the
credit risk strategy and significant credit risk policies of the bank. The strategy should reflect the
bank's tolerance for risk and the level of profitability the bank expects to achieve for incurring
various credit risks.
LECTURE – 08
Limits should also be established for particular industries or economic sectors, geographic
regions and specific products. Such limits are needed in all areas of the bank’s activities that
involve credit risk. These limits will help to ensure that the bank’s credit-granting activities are
analysis units?
Sales organization
LECTURE – 13
www.vuzs.net
Poor credit history
LECTURE – 03
Adverse credit history also called sub-prime credit history, non-status credit history, impaired
credit history, poor credit history, and bad credit history, is a negative credit rating.
transaction?
Netting agreements
Option agreements
LECTURE – 07
transactions.
www.vuzs.net
Which of the following exposures include margin and collateral agreements with periodic
unwind provisions of securitizations?
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
Liquidity-sensitive exposures include margin and collateral agreements with periodic margin
calls, liquidity back-up lines, commitments and some letters of credit, and some unwind
provisions of securitizations.
measures?
Risk management
Credit management
Risk management is the process of assessing risks and taking steps to either eliminate or to
reduce them by introducing control measures. Its purpose is to generate ideas and promote
good practice for those involved in the business of risk management.
www.vuzs.net
obligations?
Transfer risk
Systematic risk
LECTURE – 07
Transfer risk focuses more specifically on a borrower’s capacity to obtain the foreign exchange
necessary to service its cross-border debt and other contractual obligations.
contracts?
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
To maximize a bank's risk-adjusted rate of return by maintaining credit risk exposure

within acceptable parameters is the goal of which of the following?
LECTURE – 05
The goal of credit risk management is to maximize a bank's risk-adjusted rate of return by
maintaining credit risk exposure within acceptable parameters.
www.vuzs.net
Which of the following audits should also be used to identify areas of weakness in the
credit administration process, policies and procedures as well as any exceptions to
policies, procedures and limits?
LECTURE – 11
Internal audits of the credit risk processes should be conducted on a periodic basis to determine
that credit activities are in compliance with the bank’s credit policies and procedures, that credits
are authorized within the guidelines established by the bank’s board of directors and that the
existence, quality and value of individual credits are accurately being reported to senior
management.
Top level managers
Low level managers
Supervisors
LECTURE – 11
Supervisors should take particular note of whether bank management recognises problem
credits at an early stage and takes the appropriate actions.
www.vuzs.net
LECTURE – 09

Derivative function
Linear derivative
LECTURE – 12
Most market-sensitive instruments, such as financial derivatives, are viewed as relatively
sophisticated instruments, requiring some effort by both the bank and the customer to ensure
that the contract is well understood by the customer.
Question # 1 of 15
Loss given default
Exposure at default
Maturity
LECTURE – 14
Question # 2 of 15
Which of the following should ensure that granting of credit exceeding certain predetermined
levels receive prompt management attention?
Multi-user systems
Limit systems
Drain back systems
Embedded systems
LECTURE – 11
Limit systems should ensure that granting of credit exceeding certain predetermined levels
receive prompt management attention.
www.vuzs.net
Question # 3 of 15

LECTURE – 05
The board of directors should have responsibility for approving and periodically reviewing the
credit risk strategy and significant credit risk policies of the bank. The strategy should reflect the
bank's tolerance for risk and the level of profitability the bank expects to achieve for incurring
various credit risks.
Question # 4 of 15
LECTURE – 08
www.vuzs.net
Question # 5 of 15
The introduction of mostly automated credit decisions particularly entails a considerable change
in the user interface in which of the following applications?
Operations
Sales
Productions
Quality
LECTURE – 15
Changes in processes, in particular the introduction of mostly automated credit decisions, entail
a considerable change in the user interface in sales applications.
Question # 6 of 15
The ways through which banks avoid association with individuals involved in fraudulent activities
and other crimes include all of the following, EXCEPT:
LECTURE – 07
In particular, strict policies must be in place to avoid association with individuals involved in
fraudulent activities and other crimes. This can be achieved through a number of ways,
including asking for references from known parties, accessing credit registries, and becoming
familiar with individuals responsible for managing a company and checking their personal
references and financial condition.
Question # 7 of 15
Avoid making loans to borrowers from a broad spectrum and to specialize geographically and in
specific industries
All loans within the conforming loan limit at the time of origination will continue to be
deemed
Ref:
All loans that were within the conforming loan limit at the time of origination will continue to be
deemed within the conforming loan limit during the remaining lives of such loans, regardless of
whether the loan limit for any subsequent year declines to a level below the limit at the time of
origination.
www.vuzs.net
Question # 8 of 15
Which of the following is affected by the collateralized portion as well as the cost of selling the
collateral?
Loss given default
Exposure at default
Maturity
LECTURE – 13
The loss given default is affected by the collateralized portion as well as the cost of selling the
collateral.
Question # 9 of 15
LECTURE – 09
www.vuzs.net
Question # 10 of 15
Five
Four
Three
Two
LECTURE – 14
Question # 11 of 15
Which of the following exposures include margin and collateral agreements with periodic margin
provisions of securitizations?
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
Liquidity-sensitive exposures include margin and collateral agreements with periodic margin
provisions of securitizations.
www.vuzs.net
Question # 12 of 15
Credit reputation
Credit risk
Credit repair
Credit union
LECTURE – 03
Question # 13 of 15
processes?
Three
Four
Five
Six
LECTURE – 13
processes:
1. Type of borrower
Question # 14 of 15
Transfer risk
Systematic risk
LECTURE – 07
Country or sovereign risk encompasses the entire spectrum of risks arising from the economic,
political and social environments of a foreign country that may have potential consequences for
foreigners’ debt and equity investments in that country.
www.vuzs.net
Question # 15 of 15
Which of the following policies reward unacceptable behavior such as generating short-term
profits while deviating from credit policies or exceeding established limits, weaken the bank's
credit processes?
Regulatory policies
LECTURE – 06
Remuneration policies that reward unacceptable behavior such as generating short-term profits
while deviating from credit policies or exceeding established limits, weaken the bank's credit
processes.
Question # 1 of 15
Loan sales
Credit derivatives
LECTURE – 10
Banks have new possibilities to manage credit concentrations and other portfolio issues. These
include such mechanisms as loan sales, credit derivatives, securitization programs and other
secondary loan markets.
Question # 2 of 15
As part of their ongoing activities, whose responsibility is to assess the system in place at
individual bank to identify, measure, monitor and control credit risk?
Top level managers
Low level managers
Supervisors
LECTURE – 11
Supervisors should require that banks have an effective system in place to identify, measure,
monitor and control credit risk as part of an overall approach to risk management.
www.vuzs.net
Question # 3 of 15

LECTURE – 08
Question # 4 of 15
Profitability
Capital expenditure
Liquidity
People management
Question # 5 of 15
Loss given default
Exposure at default
Maturity
LECTURE – 14
www.vuzs.net
Question # 6 of 15
Identity score
Ipsative score
Standard score
Credit score
Ref:
Credit scoring, also known as FICO scoring, is a statistical method of assessing the credit risk of
a loan applicant.
www.vuzs.net
Question # 7 of 15
Which of the following holds your credit history, such as your first bank account, any credit cards
you have, or any applications for finance you may have made?
The Treasury Bureau
LECTURE – 02
A credit bureau (U.S.) or credit reference agency (UK) is a company that provides consumer
credit information on individual borrowers.
Question # 8 of 15

LECTURE – 07
Banks must develop a clear understanding of the credit risks involved in more complex credit-
granting activities (for example, loans to certain industry sectors, asset securitization, customer-
written options, credit derivatives, credit-linked notes).
www.vuzs.net
Question # 9 of 15
Five
Four
Three
Two
LECTURE – 14
www.vuzs.net
Question # 10 of 15
Who, among the following, should also consider the relationships between credit risk and other
risks?
Agents
Banks
Partners
Government
LECTURE – 05
Question # 11 of 15
Liquidity sensitive
Market sensitive
Debt sensitive
LECTURE – 12
www.vuzs.net
Question # 12 of 15
Avoid making loans to borrowers from a broad spectrum and to specialize geographically and in
specific industries
All loans within the conforming loan limit at the time of origination will continue to be
deemed
Ref:
All loans that were within the conforming loan limit at the time of origination will continue to be
deemed within the conforming loan limit during the remaining lives of such loans, regardless of
whether the loan limit for any subsequent year declines to a level below the limit at the time of
origination.
Question # 13 of 15
Transfer risk
Systematic risk
LECTURE – 07
www.vuzs.net
Question # 14 of 15

LECTURE – 08
www.vuzs.net
Question # 15 of 15
transaction?
Netting agreements
Option agreements
LECTURE – 07
transactions.
Question # 1 of 15
Profitability
Capital expenditure
Liquidity
People management
Question # 2 of 15
Which of the following policies reward unacceptable behavior such as generating short-term
profits while deviating from credit policies or exceeding established limits, weaken the bank's
credit processes?
Regulatory policies
LECTURE – 06
Remuneration policies that reward unacceptable behavior such as generating short-term profits
while deviating from credit policies or exceeding established limits, weaken the bank's credit
processes.
www.vuzs.net
Question # 3 of 15
LECTURE – 04
The CIB is legally empowered to collect credit information. The member financial institutions are
bound to share their credit information with the CIB.
Question # 4 of 15
Investment
Retail
Project
Market
LECTURE – 14
www.vuzs.net
Question # 5 of 15
The organizational structure of risk analysis is usually based on a five-level organizational

model. Which of the following is NOT a level in this model?
Division manager
Associates
Group leader
Specialists
Ref:
The organizational structure of risk analysis is usually based on a five-level organizational

model 60
Question # 6 of 15
Which of the following requires the assessment of the borrower’s credit standing?
Credit approval process
Management
Basel II
Government
LECTURE – 15
Basel II requires the assessment of the borrower’s credit standing.
www.vuzs.net
Question # 7 of 15
Which of the following is the credit rating of a self-governing entity, i.e. a country?
Consumer credit rating

Sovereign credit rating
Corporate credit rating
Personal credit rating
LECTURE – 04
A sovereign credit rating is the credit rating of a sovereign entity, i.e. a country.
Question # 8 of 15
Which of the following can result from an incorrect performance of the credit approval process?
Substantive errors
Procedural errors
Cognitive errors
LECTURE – 12
Procedural errors can result from an incorrect performance of the credit approval process.
Question # 9 of 15
Transfer risk
Systematic risk
LECTURE – 07
www.vuzs.net
Question # 10 of 15

Five
Four
Three
Two
LECTURE – 14
Question # 11 of 15
LECTURE – 05
The major cause of serious banking problems continues to be directly related to lax credit
standards for borrowers and counterparties, poor portfolio risk management, or a lack of
attention to changes in economic or other circumstances that can lead to deterioration in the
credit standing of a bank's counterparties.
www.vuzs.net
Question # 12 of 15
The level of risk is determined by the particular arrangements for settlement. All of the following
are the factors included in such arrangements that have a bearing on credit risk EXCEPT:
LECTURE – 05
The level of risk is determined by the particular arrangements for settlement. Factors in such
arrangements that have a bearing on credit risk include: the timing of the exchange of value;
payment/settlement finality; and the role of intermediaries and clearing houses.
Question # 13 of 15
Which of the following statements is TRUE for risk?
It is a venture undertaken without regard to possible loss or injury
It is the state of being certain that adverse effects will not be caused
It is conformance to the degree of excellence of a product or service
It is the perfect knowledge that has complete security from errors
Ref:
Risk, peril, danger: a venture undertaken without regard to possible loss or injury.
Question # 14 of 15
Loss given default
Exposure at default
Maturity
LECTURE – 14
www.vuzs.net
Question # 15 of 15

 Identify potential losses
 Evaluate potential losses
 Select the appropriate risk management technique
 Implement and monitor the risk management program.

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vuzs_banking@googlegroups.

Credit Analysis & Risk Management

Which of the following components is NOT associated to financial risks?

Which of the following is legally empowered to collect credit information?

Claims on individuals belong to which of the following portfolios?

The organizational structure of risk analysis is usually based on a five-level

Credit approval process

Consumer credit rating

Credit or default risk

How many approaches do Basel II provide to determine the capital requirement?

Lax credit standards for borrowers

The timing of the exchange of value

The payment/settlement finality

Which of the following statements is TRUE for risk?

It is a venture undertaken without regard to possible loss or injury

The level of exposure has an immediate impact on which of the following?

Loss given default

Select the appropriate techniques for handling losses

Top level managers

Which of the following is TRUE for potential future exposures?

These should be calculated over multiple space horizons

Which of the following components is NOT associated to financial risks?

The level of exposure has an immediate impact on which of the following?

Loss given default

The Treasury Bureau

Loans to certain industry sectors, asset securitization, customer-written options, credit

Simple credit-granting activities

How many approaches do Basel II provide to determine the capital requirement?

Credit or default risk

Which of the following statements is TRUE for exposure limits?

It is a statistical method of assessing the credit risk of a loan applicant

The level of exposure has an immediate impact on which of the following?

Loss given default

The intensive strategy

Which of the following statements is TRUE for exposure limits?

It is a statistical method of assessing the credit risk of a loan applicant

The introduction of mostly automated credit decisions particularly entails a considerable

They ask for references from known parties

Loss given default

Which of the following statements is TRUE for credit administration?

It is a statistical method of assessing the credit risk of a loan applicant

Credit or default risk

It is a department of Federal Reserve of USA

The intensive strategy

Which of the following statements is TRUE for exposure limits?

It is a statistical method of assessing the credit risk of a loan applicant

Poor credit history

Which of the following is an important way to reduce credit risks, especially in

Which of the following risks focuses more specifically on a borrower’s capacity

Credit or default risk

Which of the following exposures include foreign exchange and financial

To maximize a bank's risk-adjusted rate of return by maintaining credit risk

Operational risk management

External audits of the credit risk

Top level managers

Middle level managers

It is a statistical method of assessing the credit risk of a loan applicant

Which of the following instruments are viewed as relatively sophisticated

How many process components are there in the credit review?

Digital and light sensitive

Top level managers

The credit manager