FIN_353--Final--Spring_2008

FIN_353--Final--Spring_2008 - FIN 353Spring 2008...

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FIN 353—Spring 2008 Instructor: Deniz KEBABCI True/False Questions 1. The five Cs of credit are financial capacity, collateral, conditions, connections with the bank and capital. Answer: False Page: 563 Level: Medium 2. 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: 562 Level: Medium 3. Asset management ratios are used in credit analysis to help understand the borrower's ability to generate sales from the amount invested in some asset category. Answer: True Page: 566-567 Level: Medium 4.A spot contract is an immediate delivery versus payment contract. Answer: True Page: 630 Level: Easy 5.Gains and losses on a futures contract must be recognized daily. Answer: True Page: 630 Level: Easy 6. A forward hedge can be used to reduce the risk associated with an expected change in interest rates, but the forward hedge cannot be used to hedge the risk associated with an unexpected change in interest rates. Answer: False Page: 631-632 Level: Medium
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7. A macro hedge is a hedge of a particular asset or liability exposure to a change in a macroeconomic variable. Answer: False Page: 632 Level: Medium 8. Swaps are usually the best hedging tool to use to hedge long term risks of four or five years or more. Answer: True Page: 648 Level: Medium 9.A loan sold with recourse generates a contingent liability for the selling bank. Answer: True Page: 657 Level: Easy 10. Vulture funds specialize in buying distressed loans. Answer: True Page: 660 Level: Easy Multiple Choice Questions 1. Which one of the following is usually the better predictor of default? A) Standard and Poor's credit rating B) Moody's credit rating C) Altman Z-score D) KMV's EDF E) All of the above are equally effective at predicting default Answer: D Page: 572 Level: Medium
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2. A corporate loan applicant has cash of $30, receivables of $20 and inventory of $50. The applicant also has current debts of $50. If the bank's policy requires a current ratio of 2 or better and an acid test ratio of 1.5 or better would the applicant receive the loan? A) Yes because the applicant's current ratio and acid test ratios are acceptable. B) No because the applicant's current ratio and acid test ratios are both unacceptable. C) No because although the applicant's current ratio is acceptable, its acid test ratio is not. D) No because although the applicant's acid test ratio is acceptable, its current ratio is not. Answer: C Page: 565 Level: Medium Use the following to answer questions 3-5:
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3. Big Valley's current ratio indicates that Big Valley is ______ liquid than the typical firm in the industry and Big Valley's quick ratio indicates that Big Valley is _______ liquid than the typical firm. A)
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FIN_353--Final--Spring_2008 - FIN 353Spring 2008...

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