Moody's Practice Test 2

12/11/23, 3:17 PM Moody's Practice Test 2
NAME :
CLASS :
Moody's Practice Test 2
DATE :
100 Questions
1. What is the main purpose of conducting a competitive analysis during the loan pricing
decision process?
To determine whether the lending rate To persuade the relevant committee to

A should be adjusted based on the B approve a lending rate lower than
ceiling established by other lenders. those of competitors.
To calculate the lowest lending rate the To determine the probability of loss
C D
bank is willing to apply to theloan based on the competitor’s ratepricing
2. What part of the loan pricing process sets an interest rate floor, below which the loan
is financially undesirable?
A Loanaccounting. B Competitive analysis
C Cost analysis. D Loanstructuring
3. What is meant by the term “excess borrowings” under the Tandon Committee
approach to lending?
The amount borrowed exceeds current The liquidity level exceeds the
A B
liabilities minimum required.
The minimum required net working The maximum permissible bank

C D
capital exceeds the actual amount. borrowings exceed current assets.
https://quizizz.com/print/quiz/5f5b0c337a7187001bb17e89 1/25
4. Which describes the absolute priority rule with respect to payments made to creditors
at default?
Available funds are paid first to the Subordinated debt is paid before
A highest ranked class until the B insolvency-related costs.
borrower’s obligations are fully satisfied
Distributions to each ranked class are Available funds are paid first to the
paid out proportionately based on its lowest ranked class until the borrower’s
C D
percentage in the company's capital obligations are fully satisfied.
structure
5. At what stage in the management cycle should the management consider the effect of
changes in the external environment on the company’s business goals?
Aggregating and organising resources. Adjusting plans, resources, and

A B
methodologies.
C Assessing business needs D Developing plans to meet goals
6. What factor plays a key role in influencing the industry due to a large bargaining
power of a significant supplier?
A Decreased sales prices B Liberal credit terms
C Improved service levels D Labour disruptions
7. How might an inadequate management succession plan affect a business’s cash

flow?
Poor decisions of the new managers Cost of hiring for the positions vacated
that lack sufficient skills or experience due to promotion of the new managers
A B
might result in weaker business will impact the cash flow.
performance.
Training the new managers to address Weak relationship of the new

their skill gaps may result in excessive managers with the bank staff may
C D
costs. result in the credit facilities not being
renewed
8. Which best describes the effect that political decisions and frequent legislation
changes in India have on its business and industry risk?
Demonetisation of high denomination Banks absorb most of the impact and

currency notes is an example of businesses are less affected as a
A B
legislation that negatively affects small result.
businesses working with cash.
Taxation policies cause businesses to Opportunistic decisions that influence

C be less transparent in their financial D monetary policy can negatively affect a
reporting. business’s financial performance
9. What is considered as one of the three levels of oversight in the corporate

governance process?
A Banks and other lenders B The board of directors
C The regulators. D The media.
10. How can a company’s management best minimise the impact of potential
interruptions in the input supplies?
Ensure that there is an alternate supply Hold large stocks for all key supply
A B
source for all key inputs. inputs
Maintain good personal rapport with Obtain supplier insurance

C D
the key input suppliers.
11. Which state of the economy has a neutral impact on credit risk?
A Growth B Recovery.
C Contraction. D Stability.
12. Which proposition is least likely to be considered for a term loan for its financing
requirements?
Capital expenditure for a power plant Daily working capital requirements for
A B
a small business.
Expansion of a fleet of vehicles. An instalment financing construction

C D
project.
13. Which lists the primary components of India’s corporate debt restructuring (CDR)
system?
Multiple banking accounts, Debtor-creditor agreements, inter-

A B
syndications, consortium account creditor agreement
CDR Standing Forum, CDR Repayment period, repayable amount,

C D
Empowered Group, CDR Cell. instalment amount, interest rate.
14. What is the benefit of setting meaningful forecast assumptions in the overall
projection process?
To enable a realistic assessment of the To reflect factors independent of

projected financial performance that a management’s past performance.
A B
credit decision is substantially based
on.
To confirm future loan payments will be Assumptions depend on the results of

C D
achievable. the projections
15. XYZ trucking company (XYZ) has recently entered into an arrangement with an online
sales business to deliver their general consumer goods and expect that this
partnership will improve their sales. XYZ has sought enhanced financing to support
this new business. The transportation industry is in a decline due to a recession, and
XYZ’s most recent annual financial statement shows relatively weak sales
performance. What is the next step in assessing XYZ’s credit application?
The assessment should continue with The assessment should end, and credit
A more focus on the sales projections B should be declined.
scenarios and cash flow impact.
The assessment should be postponed The assessment should continue and

C until the industry enters the recovery D focus on total profit as a measure of
stage. success.
16. In what type of security charge are goods and raw materials commonly pledged as
assets?
A Hypothecation. B Lien
C Assignment. D Mortgage.
17. An increase in which item will increase a borrower’s debt service coverage ratio?
A Cash flow from operations B Scheduled principal repayment
C Loan interest. D Loan collateral.
18. Which is an example of a liquidity early warning signal?
Rising corporate bond prices. Frequent overdrafts that are covered in

A B
a few days.
A large cheque that is returned for Non-consolidation of subsidiaries’

C D
insufficient funds. accounts
19. When allowing a customer to draw under a domestic bill discounting facility, why is it
important to confirm that there is an underlying movement of goods?
To ensure that the transaction is not a To avoid providing financing for

A B
one-off. intergroup transactions
To ensure that financing is provided To reduce the possibility of providing

C only for goods that have been shipped D accommodation finance.
to existing customers
20. During which implementation phase of deal structure is counsel instructed on

documentation and covenant definition issues?
A Drawdown. B Negotiation.
C Design. D Monitoring.
21. In what type of feasibility assessment is a project’s maximum debt to equity ratio
reviewed?
A Means of finance. B Technical viability.
C Economic viability D Cost of project.
22. What is a characteristic of a good business plan
A Setting measurablegoals. B Setting businessobjectives
C Defining who is accountable to the plan D Being reactive to changing demand
23. Which source of external information about a company’s past behaviour can be used
to assess its management integrity?
Discussions with management Account statements showing whether

A B the company has met its obligations to
the bank on time
Details of dividends paid over the last Opinion about management included in
C D
five years. credit agency reports.
24. What causes market overcapacity?
A Industry growth. B Drop in a sales price.
C Weak competition. D Low product demand.
25. What type of risk is the risk that credit exposure is not adequately structured?
A Industry risk B Facilityrisk.
C Management risk. D Financialrisk
at default?
Subordinated debt is paid before Available funds are paid first to the
A insolvency-related costs B lowest ranked class until the borrower’s
obligations are fully satisfied
Available funds are paid first to the Distributions to each ranked class are
highest ranked class until the paid out proportionately based on its
C D
borrower’s obligations are fully percentage in the company's capital
satisfied. structure
27. Company A had outstanding trade payable for an average of 44 days in Fiscal Year-
End (FYE) 1 and 41 days in FYE 2. Company B had outstanding trade payable for an
average of 52 days in FYE 1 and 55 days in FYE 2. Which of Company A or
Company B is most likely to borrow funds, and why?
Company A due to reduced cash flow. Company B due to increased cash

A B
flow.
C Company A due to increased cash flow. D Company B due to reduced cash flow.
28. What will have the biggest effect on the risk premium when pricing a loan?
A The expected loss of the loan. B The bank’s growth strategy.
C The term of the loan. D The expected return on equity.
29. What must a lender do to assess the effect of a company’s capital expenditures on its
cash flow?
Determine asset value and compare to Review increased capital assets and
A B
expected revenues. evaluate serviceability.
Understand the purpose of spending Use accumulated depreciation to

C D
and changes in cash flow. estimate net cash flow.
30. What effect would a decrease in a business’s sales growth during a recession have
on cash flow?
A Remains consistent. B Long-term increase.
C Long-term decrease. D Short-term decrease.
31. Which factor can make it difficult to project a business’s financial performance based
on historic trends?
Minimum rate for the lender’s return on Management’s future plans.

A B
assets.
Past operating results. Economic and competitive

C D
environments.
32. In which scenario would customer concentration cause significant cash flow risk for a
business?
The business supplies specialised The business sells clothing to

A B
parts to the largest auto maker. individual consumers.
The business distributes flour to most The business provides cleaning

C bakeries in the region. D services to schools, offices and
residential buildings.
33. What is the primary function of stock statements in the administration of fund-based
working capital limits?
To indicate the aging profile of To provide evidence that can be used

A inventory and receivables for B in legal proceedings.
calculation of the eligible items.
To provide monthly movement in the To calculate drawing power.

C level and quality of inventory and D
receivables.
34. What type of opinion does an auditor provide when it disagrees with the information
and/or conclusions in a company’s financial report?
A Unqualified. B Strong.
C Adverse. D Qualified.
35. According to the Indian Companies Act, within what period of the creation of a
security charge must it be registered, including the maximum permitted period of
condonable delay?
A 30 days. B 300 days.
C 5 years. D 1 year.
36. What is the primary purpose of calculating drawing power in a funds-based working
capital facility?
To determine the amount the customer To ensure that drawings are being
A B
can draw on. used to fund current assets.
To check that the value of eligible To ensure that bank funds are not tied
C assets is at least equal to the approved D up in obsolete stocks.
credit limit.
37. Which type of security can be used in a pledge charge?
A Building. B Life insurance contract.
C Heavy equipment. D Finished goods.
38. What information in a credit agency report can help a bank assess a company’s
management integrity?
Information about the financial How freely the management shares

A B
performance. information.
Details on covenant compliance for the Opinion about the company

C D
bank loans. management.
39. What is one benefit of cash accounting?
It records all transactions of a particular It provides a cash-flow-based

A B
accounting period. statement of profit and loss.
It gives a complete view of the financial It records cash and non-cash

C D
status of a business. components of a transaction.
40. Why does a special purpose vehicle expose a lender to more risk than conventional
financing?
The loan has no security guaranteed. The sponsor is the only party liable for
A B
the loan.
The loan is repaid only from the The loan has no security guaranteed.
C D
project’s cash flows.
41. Which action might a company take when it is in the cash concern stage of financial
distress? <br />
A Cancelling bonuses. B Eliminating management positions.
C Laying off key employees. D Selling vital assets.
42. What is a way to conduct an inventory check when verifying the entire inventory is not
feasible?
Review work in progress records Review Central Excise taxation

A B
records.
Conduct an ABC analysis. Review Central Excise taxation

C D
records.
43. At which stage of a business’s life cycle is it considered the most risky for credit
approval?
A Start-up. B Adolescence.
C Growth. D Maturity.
44. What previous management action is likely to raise doubt about management integrity
and whether to enter into a credit relationship with a business?
Tax planning. Marginally increasing the dividend

A B payout ratio compared to the previous
financial year.
Making tweaks to reported accounts to Making changes to the board of

mask a declining financial directors and audit committee to
C D
performance. increase the proportion of independent
directors.
45. Which party enforces a bank guarantee in the event of default?
A Government. B Guarantor.
C Applicant. D Beneficiary.
46. What is the primary source of cash flow used in calculating debt repayment capacity?
A Sale of an asset. B Extraordinary income.
C Cash generated from operations. D Peripheral rental fees.
The minimum required net working The amount borrowed exceeds current
A B
capital exceeds the actual amount liabilities.
The liquidity level exceeds the The maximum permissible bank

C D
minimum required borrowings exceed current assets.
48. What is the primary purpose of the loan pricing process?
To assess the probability of loss in the To calculate the profitability of the loan
A B
event of default. transaction for the bank.
To determine appropriate interest rate To support the lender’s position in the

C D
and fees in line with the risk assumed. negotiation process with the borrower.
49. Which method of inventory valuation maximises a company’s net income during
periods of inflation?
A Average cost. B First-in, first-out
C Weighted average. D Last-in, first out.
50. Which action by a borrower’s management team could have an adverse effect on its
cash flow and ability to meet its obligations?
Setting business plan objectives that Adopting a conservative business

A B
are overly aggressive. planning strategy.
Disclosing confidential information to Setting business plan objectives that

C other stakeholders on a need to know D are overly aggressive.
basis.
51. What type of credit rating will most likely cause a borrower’s credit score to be
adjusted downward because of an expected downturn in the borrower’s industry?
A Fail grade rating B External international rating
C Facility risk rating D Single risk rating
at default?
Available funds are paid first to the Available funds are paid first to the
A lowest ranked class until the borrower’s B highest ranked class until the
obligations are fully satisfied borrower’s obligations are fully satisfied
Distributions to each ranked class are Subordinated debt is paid before

paid out proportionately based on its insolvency-related costs
C D
percentage in the company's capital
structure
53. What is the profit before tax and financial costs for a company with sales of INR
7,000,000, cost of goods sold of INR 3,600,000, operating expenses of INR
1,400,000, interest expense of INR 60,000 and tax expenses of INR 125,000?
A INR 940,000 B INR 2,000,000
C INR 815,000 D INR 1,185,000
The minimum required net working The amount borrowed exceeds current
A B
capital exceeds the actual amount liabilities
The maximum permissible bank The liquidity level exceeds the

C D
borrowings exceed current assets minimum required
55. What type of credit rating is most appropriate to evaluate the credit risk of a group of
borrowers that has never borrowed money before?
A Corporate family rating B Short-term rating
C Issuer rating D Issue rating
56. Which item is evaluated more substantively when determining the amount of
financing available to a company under the assessed bank finance method as
compared to the maximum permissible bank finance method?
A Liquidity B Assets
C Current Ratio D Trade payables
57. How should a customer’s account activity be monitored to ensure end-use of funds?
Review a percentage of all the Review the transactions above a

A B
transactions threshold amount
Scrutinise all the transactions Browse through the account and

C D
regardless of value investigate any unusual transaction
58. Companies operating in which industry are most likely to have a high investment in
fixed infrastructure assets, with little inventory?
A Home construction B Financial services consulting
C Electric utility D Food retailing
59. Which factor will decrease a buyer’s market risk in the long term in conditions where
the supplier has high bargaining power?
Availability of substitute products in the High demand skilled workers are

A B
market employed by the supplier
C Increase in supplier’s market share D Buyer’s ability to pay
60. What information should be reviewed in the periodic progress reports on

implementation of a project to assess likelihood of meeting the loan repayment
obligations?
The project implementation is on Funding is available to cover any cost

A B
schedule overruns
There are orders for the project outputs Project reports have been approved by
C D
once completed the lender’s engineer
61. Why is management integrity the most critical factor when assessing the impact of
management risk on a company’s credit risk?
A positive assessment of management A lack of integrity can result in a

integrity is necessary for a lender to be company using cash flows for
A B
confident in the reliability of the purposes other than interest or loan
information provided by the company payments
A lack of integrity can result in a Management lacking integrity may

company’s underperformance and prioritise payments to other external
C D
subsequent inability to meet its stakeholders
payment obligations
62. What governing body for the Insolvency and Bankruptcy Code would set up
accreditation for insolvency professionals and information utilities?
Insolvency and Bankruptcy Board of Adjudicating Authority

A B
India
C Debt Recovery Tribunal D Insolvency Professional Agency
63. Which proposition is least likely to be considered for a term loan for its financing
requirements?
Capital expenditure for a power plant An instalment financing construction

A B
project
Expansion of a fleet of vehicles Daily working capital requirements for

C D
a small business
64. What is the primary reason for reviewing external information when assessing a
company’s credit quality?
To evaluate what developments may To evaluate any adverse press

A create opportunities for the company or B coverage of the company
adversely affect its performance
To assess the company’s vulnerability To review any gradual economic

C to natural disasters D changes that may affect the company’s
industry
65. Which factor will most likely affect the length of time it takes to convert inventory to
sales?
A Increased financing B Accounts payable growth
C New products D Management decisions
66. What is the difference between a partnership firm and a Limited Liability Partnership
(LLP)?
If a partner dies a partnership firm An LLP is a separate legal entity from

A continues to exist and an LLP B its members and a partnership is not a
dissolves separate legal entity
The income from a partnership firm An LLP is governed by the Indian

C stays within the firm and LLP income is D Partnership Act and a partnership firm
personal income for the partners is governed by the Companies Act
67. How many days is the short-term financing gap for a company with 57 trade
receivables days, 78 inventory days and 73 trade payables days?
A 84 B 42
C 178 D 62
68. What is the first step for a management team in order to achieve results through the
efforts of others?
Manage the critical business Source the necessary resources

A operations on a daily and long-term B
basis
Set the strategic direction Incentivise the organisation in an

C D
effective manner
69. What type of non-fund-based lending facility would a buyer of goods and services use
to guarantee a one-time payment?
A Letter of credit B Export credit
C Term Loan D Overdraft
70. Which costs related to environmental hazards can have a significant negative impact
on a company’s credit risk?
Cost of professional assessment of Cost of insurance premiums

A B
facilities for safety
Cost of compliance with environmental Cost of hazardous waste clean-up

C D
laws
71. What general inference can be made about a company that has positive cash flow
from operations, and that is borrowing and investing?
A It is restructuring B It is closing down
C It is starting up D It is acquiring other companies
72. Which action by a borrower’s management could have an adverse effect on its cash
flow and ability to meet its obligations?
Adopting a conservative financing Executing plans to ensure short-term

A B
strategy goals are met
Increasing the rate of depreciation Disclosing information to other

C D
resulting in reduced net income stakeholders on need to know basis
73. What is the impact of low market entry barriers on competition within an industry and
the financial performance of businesses’ operating within the industry?
Increased competition, increased cash Increased competition, decreased cash

A B
flow flow
Decreased competition, decreased Decreased competition, increased

C D
cash flow cash flow
74. Which organisational structure can inhibit management’s ability to take decisions thus
adversely affecting the company’s performance and credit risk?
A pyramidal structure A structure in which roles and

A B
responsibilities are clearly documented
A structure that has distinct divisions A centralised decision-making process

C D
between different functions
75. Why does a special purpose vehicle expose a lender to more risk than conventional
financing?
The loan has no security guaranteed The sponsor has no established track
A B
record
The loan is repaid only from the The sponsor is the only party liable for
C D
project’s cash flows the loan
76. Which of the following statements is most accurate with regard to the impact
environmental risk has on lending?
Despite environmental risk, a lender's Environmental risk can extend a

A liability is limited to the loss of principal B lender's liability beyond the loss of
and interest. principal and interest.
Environmental risk has no impact on Environmental risk decreases the

C the extent of a lender's liability. D lender's risk of loss of principal and
interest.
77. What information about a borrower's customer base would likely be most relevant to
assessing credit risk?
The impact on cash flow if the business The names of the business's largest
A B
loses its largest customer. and most loyal customers.
The total number of the business's The terms offered by the business to
C D
customers. retain the best customers.
78. What are the most likely consequences of significant regulation (other than barriers to
entry) on a business?
Expenses increase while capital Expenses and capital expenditures

A B
expenditures decrease. decrease.
Expenses decrease while capital Expenses and capital expenditures

C D
expenditures increase. increase.
79. Which of the following is most accurate regarding the relationship between sales and
business and industry health?
Expanding sales imply a declining Declining sales imply a declining

A B
business or industry. business or industry.
Sales trends are not impacted by Reviewing sales over six months
C business and industry health. D should yield similar results to a 10-year
review.
80. As a recession approaches, which combination of borrower characteristics would

cause a lender to be most concerned?
Decreasing profitability, small market Marginal cash flow, flat profits and
A B
share and low gearing. small market share.
Small market share, flat cash flow and Declining profits, increasing gearing
C D
low gearing. and declining cash flow.
81. Which of the following statements is true regarding durable products?
Non-durable product sales tend to lag Demand for durable goods decreases
A durable product sales during a B as the macro economy enters a
downturn. recovery.
The durability of a product has no The most critical factor related to sales
C impact on the volatility of its sales. D volatility is the durability of the product
being sold.
82. How do you arrive at a preliminary financial risk assessment?
Conduct market research, then review Conduct general research, then review
A B
and analyse ratios and projections. and analyse ratios and cash flow.
Conduct general research, then review Conduct market research, then review
C D
and analyse ratios and projections. and analyse ratios and cash flow.
83. Which risk category is typically considered critical when addressing a borrower's
overall credit risk?
A Audit risk. B Management risk.
C Sovereign risk. D Counterparty risk.
84. How would you assess the repayment risk associated with a company with seasonal
sales compared to one that has steadier sales throughout the year, all other things
beingequal?
The seasonal business will have lower None of the above

A B
repayment risk.
Both businesses have the same level The seasonal business will have higher
C D
of risk. repayment risk
85. Tea-Shop Ltd. finance their new store leases using 2/3rd debt and 1/3rd equity. Which
of these events would reduce the risk for the lendinginstitution?
Reduction in costs of tea Decrease in credit provided by

A B
suppliers
Decrease in store sales with a constant Increase in store maintenance costs.

C D
operating margin.
86. You see a news item that the Government has increased the minimum support price
of sugarcane. Sugar production is expected to exceed the demand during the year
and globally also there is abundant supply. What could be the implication
sugarcompanies?
This could have serious adverse No implication for the sugar

implications for the sugar companies’ companies. They would push their
profitability and may lead to losses. In output to their wholesalers
A case the companies hold on to their B
output, it will have significant carrying
costs which again would affect the
profitability
No major implication. The companies There would be excess inventory of

C will offload their production when prices D sugar cane with the sugar companies
improve
87. Best Bakers LLP bake and supply breads for retailers. In looking to expand their
capacity to support a growing market, which form of financing would be most
appropriate andwhy?
Raising new equity from shareholders Extending its existing overdraft facility
because this type of funding is both because this type of funding provides
A long-term and relatively inexpensive B maximum flexibility required due to the
compared to other forms of financing. uncertain operating conditions that the
expansion will create.
Reducing its operating cycle to Raising a new term-loan that can be

generate greater operating cash flows secured against the new assets
because this type of funding is free because this type of funding will
C D
financing and will maximise the returns provide secure financing over the
that the new assets will generate for operational life of the capital asset
shareholders.
88. Describe the potential structural subordination risk of lending to a holdingcompany
The holding company may have dated The holding company may have
A B
documentation unrealistic projected revenues
The holding company may have limited The holding company may have non-
C D
operating assets consolidated financial statements
89. Under what scenario is having insurance most likely to have a positiveeffect?
A Earthquake B Recession
C Political turmoil D Economic boom
90. What is meant by the term "amount owing" on a credit agencyreport?
The normal terms of sale extended by The greatest amount of credit extended
A B
the supplier
The date or amount of time since the The debt due by a business at the time
C latest sale was made D of the survey and the status of that
amount (current, amount past due)
91. Why is it preferable to make the disbursement of a term loan directly in favour of
asupplier
This is one of the ways to ensure that Direct disbursement to the supplier
the disbursed funds are used for the would facilitate quicker supply of
A B
purpose for which the term loan is equipment
sanctioned
To whom the disbursement is made is This is only logical

C D
immaterial
92. In a UCA cash flow statement, what is the calculation for "change incash"?
Financing Surplus (Requirement) - Net Income - Total External Financing

A B
Total External Financing
Net Income + Total External Financing Financing Surplus (Requirement) +

C D
Total External Financing
93. For a lender assessing credit risk, what business is likely to have a credit agency
report with the most meaningfulinformation?
A non-borrowing small business A medium business with many

A B
suppliers
C A small business with few suppliers D A non-borrowing large business
94. What is the most important constraint in getting a pricing on a loan which is fully in
accordance with the risk assessment?
Competitive scenario, since Bank’s pricing policy

competition places a ceiling on pricing
A B
which may be acceptable to the
customer
C Profitability calculation D Loan structuring
95. Which statement about the cash flow coverage ratio is notcorrect?
It is an indicator of the ability to pay It focuses on internal cash flow

A interest, dividends and scheduled debt B
payments
It uses accrual income values from the It is a broader metric than the interest
C D
profit and loss statement coverage ratio
96. Which statement is incorrect with respect to the legal documentation signed as part of
the corporate debt restructuring (CDR)process?
The standstill agreement does not If the debtor agrees, the period of
A apply to criminal action B limitation can be extended beyond the
standstill period
The Debtor Creditor Agreement and The Debtor Creditor Agreement is part
the Inter Creditor Agreement are of the Standstill Agreement
C signed at almost the same time, at the D
beginning of the Corporate Debt
Restructuring (CDR) process
97. Under Section 186 of the Companies Act, 2013, loan and investment by company,
acompany
Can lend money to any other company Can give a guarantee for a loan taken
A B
by any other company
Cannot do any of the above Can buy the securities of another

C D company only to the extent of 60% of
its own capital and free reserves
98. Which of the following is correct with respect to a banker’s right of lien?
Possession of the goods remains with Ownership of goods is transferred to

A B
the borrower the bank
A general lien converts to a specific lien The right of lien is subject to the law of
C if the bank appropriates the lien D limitation
towards a specific debt of the borrower
99. Which critical skill for executives seeks to rally people in the business to further the
enterprise's mission, accomplish its plans, earn the trust of colleagues and customers,
and demonstrate and foster commitment to the business and itsgoals?
A Leadership B Commitment
C Knowledge D Communication
100. You are examining a loan request for a short-term loan to cover working capital
requirements. On examining the financial statements you establish that sales have
fallen, the business has an operating loss, it has negative operating cash flow and
there is a sharp increase in payable days outstanding. You establish that this is high
risk loan application. How should you proceed with your financial analysis?
You should examine the financial You should examine the financial
statements more carefully to see if statements more carefully to see if
A B
there are any assets that might be sold there are any opportunities to turn
to finance the loan around the business
You need not do further work with the You should examine the financial
financial statements and can reject the statements more carefully to see if
C loan application D there are any off balance sheet
liabilities that may increase the level of
risk

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12/11/23, 3:17 PM Moody's Practice Test 2

To determine whether the lending rate To persuade the relevant committee to

A Loanaccounting. B Competitive analysis

C Cost analysis. D Loanstructuring

The minimum required net working The maximum permissible bank

Aggregating and organising resources. Adjusting plans, resources, and

C Assessing business needs D Developing plans to meet goals

A Decreased sales prices B Liberal credit terms

C Improved service levels D Labour disruptions

7. How might an inadequate management succession plan affect a business’s cash

Training the new managers to address Weak relationship of the new

Demonetisation of high denomination Banks absorb most of the impact and

Taxation policies cause businesses to Opportunistic decisions that influence

9. What is considered as one of the three levels of oversight in the corporate

A Banks and other lenders B The board of directors

C The regulators. D The media.

Maintain good personal rapport with Obtain supplier insurance

Expansion of a fleet of vehicles. An instalment financing construction

Multiple banking accounts, Debtor-creditor agreements, inter-

CDR Standing Forum, CDR Repayment period, repayable amount,

To enable a realistic assessment of the To reflect factors independent of

To confirm future loan payments will be Assumptions depend on the results of

The assessment should be postponed The assessment should continue and

A Cash flow from operations B Scheduled principal repayment

C Loan interest. D Loan collateral.

18. Which is an example of a liquidity early warning signal?

Rising corporate bond prices. Frequent overdrafts that are covered in

A large cheque that is returned for Non-consolidation of subsidiaries’

To ensure that the transaction is not a To avoid providing financing for

To ensure that financing is provided To reduce the possibility of providing

20. During which implementation phase of deal structure is counsel instructed on

A Means of finance. B Technical viability.

C Economic viability D Cost of project.

22. What is a characteristic of a good business plan

A Setting measurablegoals. B Setting businessobjectives

C Defining who is accountable to the plan D Being reactive to changing demand

Discussions with management Account statements showing whether

24. What causes market overcapacity?

A Industry growth. B Drop in a sales price.

C Weak competition. D Low product demand.

A Industry risk B Facilityrisk.

C Management risk. D Financialrisk

Company A due to reduced cash flow. Company B due to increased cash

A The expected loss of the loan. B The bank’s growth strategy.

C The term of the loan. D The expected return on equity.

Understand the purpose of spending Use accumulated depreciation to

A Remains consistent. B Long-term increase.

C Long-term decrease. D Short-term decrease.

Minimum rate for the lender’s return on Management’s future plans.

Past operating results. Economic and competitive

The business supplies specialised The business sells clothing to

The business distributes flour to most The business provides cleaning

To indicate the aging profile of To provide evidence that can be used

To provide monthly movement in the To calculate drawing power.

A 30 days. B 300 days.

37. Which type of security can be used in a pledge charge?

A Building. B Life insurance contract.

C Heavy equipment. D Finished goods.

Information about the financial How freely the management shares

Details on covenant compliance for the Opinion about the company

39. What is one benefit of cash accounting?

It records all transactions of a particular It provides a cash-flow-based

It gives a complete view of the financial It records cash and non-cash

Moody's Practice Test 2

Moody's Practice Test 2