Minitest 1:

Name: Student ID:

Part 1: Fill suitable word in the blank

1. The______________ is a uniform rating system developed by regulators where banks are given
a rating from one to five in each of six categories and an overall rating from one to five.
2.A______________ is signed by the borrower and indicates the principal amount of the loan, the
interest rate on the loan and the terms under which repayment must take place.
3. ____________________________ are those things a borrower must do. They are actions the
borrower must take. Examples include filing periodic financial statements with the bank and
purchasing insurance on any collateral pledged.
4. ______________ are loans that carry a strong probability of loss to the bank.
5. A(n)______________ is the process of resolving a troubled loan so the bank can recover its
funds.
6. ______________ is one of the key features of any loan. This C of lending examines whether
the borrower will have enough sales or income to repay the loan.
7. A bank’s__________________________________________ gives loan officers specific
guidelines in making individual loan decisions and in shaping the overall loan portfolio.
8. is where the lender buys equipment or vehicles and rents them to its
customers.
9. In the loan workout process, the preferred option is nearly always to seek a _______________,
which gives both the lending institution and its customer the chance to restore normal
operations.
10. One part of the 6 C’s of lending is which looks at whether the borrower
has a well-defined purpose for the loan and a serious intent to repay the loan.
Part 2: True/False and explain shortly (less than 200 words)

1. If the economy slows down a bank should review its outstanding loans more frequently.
2. Loan review is considered to be a luxury, not a necessity for most banks, especially those with
sound lending policies.
3. A restriction against a borrower taking on new debt is an affirmative covenant in a loan
contract.
Part 3: Exercises

1. The Tate Manufacturing Company has $150 million in sales revenue with $90 million in cost
of goods sold. It has selling and administrative expenses of $10, pays annual taxes in the
amount of $10 and has depreciation and other non cash expenses of $30 million. What are this
firm’s annual projected cash flows?
2. Shelby Mann is a loan officer with the First National Bank. She interviews a potential loan
customer to find out exactly why the person needs the loan and whether they would be serious
about repaying the loan. Which step in the lending process is Shelby performing?