What is Credit
What is credit?
Borrowing money, access goods, or service that you will pay later.
How do you stay out of debt?
If it takes 5 machines 5 minutes to make 5 widgets, how long would it take 100 machines to make 100 widgets?
5
What is the primary source of credit risk?
a) Currency fluctuations
b) Borrower default
c) Market volatility
d) Interest rate changes
b) Borrower default
Which document is typically required to assess a borrower’s creditworthiness?
A credit report
What is credit worthiness?
How likely you will default on your debt obligations according to a lender's assessment, or how worthy you are to receive new credit.
Why does credit risk interest you?
the higher the level of credit risk associated with a loan the greater the likelihood of default.
What are the basic elements of credit?
Capacity, Capital, Collateral, Conditions and Character.
Which financial ratio is used to measure a borrower’s ability to pay off short-term obligations?
a) Debt-to-equity ratio
b) Current ratio
c) Profit margin
d) Price-to-earnings ratio
b) Current ratio
Which agency is NOT a major credit rating agency?
a) Moody’s
b) Fitch Ratings
c) Standard & Poor’s
d) Goldman Sachs
d) Goldman Sachs
What is the difference between credit and debt?
Debit is money that goes into an account, while credit is money that goes out of an account
Why are credit reports necessary?
Stay Proactive Against Fraud. Checking your credit file can help you spot potential identity theft or fraud early.
A man is looking at a photo of someone. His friend asks, "Who is it?" The man replies, "Brothers and sisters, I have none. But that man’s father is my father’s son." Who is in the photo?
The man’s son.
Which credit scoring model predicts corporate bankruptcy?
a) FICO Score
b) Z-Score Model
c) CreditMetrics
d) LIBOR Model
b) Z-Score Model
If a borrower with a good credit history starts missing payments, what early intervention strategies should a lender adopt to prevent default?
Why might a bank impose higher capital requirements for loans to high-risk borrowers?
To ensure the bank can absorb potential losses and maintain financial stability.
How does credit risk affect interest rates?
investors and lenders usually demand a higher rate of interest for their capital
Name one key limitation of credit scoring models. How do you maintain high credit?
They may not account for sudden changes in a borrower’s financial situation.
What is the primary difference between internal and external credit ratings?
a) Internal ratings are objective; external ratings are subjective.
b) Internal ratings are proprietary to a financial institution; external ratings are published by agencies.
c) Internal ratings assess individuals; external ratings assess companies.
d) There is no difference.
b) Internal ratings are proprietary to a financial institution; external ratings are published by agencies.
Imagine a bank uses outdated credit scoring models, leading to poor risk assessments. As the head of risk management, what innovative technologies or methods would you introduce to modernize the process?
Which financial ratio is commonly analyzed to assess a company’s ability to repay debt?
Debt-to-equity ratio.
How do geopolitical risks influence credit risk in cross-border lending? at least 2 of them
Political instability, trade restrictions, and currency fluctuations can increase the likelihood of defaults in international loans.
What is something that you can hold without using your hands?
your breath
You’re in a room with 100 people. Each person shakes hands with every other person exactly once. How many handshakes take place?
4,950 handshakes. (This is calculated by the formula: 100×992\frac{100 \times 99}{2}2100×99, which counts the number of unique pairs.)
What word is spelled incorrectly in every dictionary?
incorrectly