Chapter 21-25 - True/False Questions 1 Larger banks are...

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Unformatted text preview: True/False Questions 1. Larger banks are more likely to accept riskier loans than smaller banks. Answer: True Page: 547-548 Level: Easy 2. Non-performing loans are loans that are past due 60 days that are not accruing interest. Answer: False Page: 547-548 Level: Medium 3. Gross debt service usually must be greater than 30% before a residential mortgage will be approved. Answer: False Page: 550 Level: Medium 4. The gross debt service ratio is equal to annual accommodation expenses divided by annual gross income. Answer: True Page: 550 Level: Easy 5. Individuals with higher levels of income must have higher GDS and TDS ratios to qualify for a loan. Answer: False Page: 551 Level: Medium 6. Collateral on a mortgage is normally only considered if the applicant has enough income to service the loan. Answer: True Page: 553 Level: Easy 7. The five Cs of credit are character, mental capacity, collateral, conditions, and capital. Answer: False Page: 554 Level: Medium Saunders, Financial Markets and Institutions , 2/e 231 Chapter 21 Managing Risk on the Balance Sheet 1: Credit Risk 8. Credit analysis of a mid–market corporate borrower differs from the analysis of a small business in that the analysis of the mid–market borrower is more focused on the business itself and less on the business owners. Answer: True Page: 554 Level: Medium 9. Perfecting collateral is the process of taking the proceeds of the forced sale of a mortgage property to satisfy the debt in the event of failure to repay the mortgage. Answer: False Page: 553 Level: Medium 10. Approving a loan for a customer with negative cash flow from operations is not a concern to a bank loan officer as long as cash flow from financing is positive. Answer: False Page: 555 Level: Medium 11. Liquidity ratios include the current ratio, the quick ratio and the sales to working capital ratio. Answer: False Page: 557-558 Level: Easy 12. A rising sales to working capital ratio may indicate a potential borrower is using its net current assets more efficiently. Answer: True Page: 558 Level: Easy 13. The more variable are a borrower's cash flows, the greater the fixed charge coverage ratio should be to limit risk. Answer: True Page: 558-559 Level: Easy 14. Corporate credit agreements are usually reviewed at least annually. Answer: True Page: 561 Level: Easy 15. A borrower's EDF is a better prediction of default than either its Z score or S&P rating. Answer: True Page: 564 Level: Medium Saunders, Financial Markets and Institutions , 2/e 232 16. Compensating balances are a cost to the borrower and generate income to the lender. Answer: True Page: 566 Level: Easy 17. RAROC is the expected default frequency of a particular borrower....
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This note was uploaded on 07/03/2011 for the course ECON 101 taught by Professor Ramiz during the Spring '11 term at Abilene Christian University.

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Chapter 21-25 - True/False Questions 1 Larger banks are...

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