Q&A Hero

Q: A business receives a three year line of credit against which it can borrow, repay, and borrow again if necessary during the loan's three year term. What type of loan is this? A. Self-liquidating inventory loan B. Working capital loan C. Security dealer financing D. Revolving credit financing E. None of the options is correct.

Q: The term of an inventory loan is being set to match the exact length of time needed to generate sufficient cash to repay the loan. What type of loan is this? A. Self-liquidating inventory loan B. Working capital loan C. Security dealer financing D. Revolving credit financing E. None of the options is correct.

Q: Credit is extended to a company up to one year to purchase raw materials and cover a seasonal peak need for cash. What type of loan is this? A. Interim Construction Financing B. Working capital loan C. Security dealer financing D. Revolving credit financing E. None of the options is correct.

Q: A security dealer requires credit to add new government securities to his security portfolio. What type of loan is this? A. Asset-Based Financing B. Working capital loan C. Security dealer financing D. Revolving credit financing E. None of the options is correct.

Q: A bank wants to examine whether the borrower can raise cash in a timely fashion to pay bills that are coming due. This bank would most likely examine which of the following categories of ratios? A. Customer's control over expenses B. Customer's liquidity C. Customer's operating efficiency D. Customer's profitability E. None of the options is correct.

Q: A bank that wants to examine the liquidity of a borrower would most likely examine which of the following ratios? A. Costs of goods sold Average inventory B. Income before interest and taxes Interest payments C. Cost of goods sold Net sales D. Current assets Current liabilities E. All of the options are correct.

Q: A bank that wants to examine the operating efficiency of a borrower would most likely examine which of the following ratios? A. Cost of goods sold Average inventory B. Income before interest and taxes Interest payments C. Cost of goods sold Net sales D. Current assets Current liabilities E. All of the options are correct.

Q: Under court interpretation of the Comprehensive Environmental Response, Compensation, and Liability Act, lenders may be liable for clean-up costs of hazardous substances if: A. the lender is involved in managing property with hazardous wastes. B. the lender has a strong association with the property owner. C. the lender has treated the interest in the borrower's property as a long-term investment. D. All of the options are correct. E. the lender does not take action primarily to protect the credit they have extended.

Q: Term loans normally are secured by: A. fixed assets. B. accounts receivable. C. inventories. D. personal property. E. None of the options is correct.

Q: Recent federal guidelines put in place by the Federal Deposit Insurance Corporation require banks to develop written procedures to protect against loss from environmental damage. These procedures are known as the: A. lender protection program. B. environmental risk assessment program. C. lender liability security program. D. environmental pollution control program. E. None of the options is correct.

Q: When analyzing the financial statements of a business, a credit analyst will look for ratios in which of the following categories? A. Profitability B. Coverage C. Operating efficiency D. Liquidity E. All are categories of ratios that bankers will look for.

Q: The most common sources that lenders look to for repayment of business loans include all of the following except: A. the borrower's cash flow. B. assets pledged as collateral. C. goodwill of the borrower. D. the borrower's net worth. E. None of the options is correct.

Q: Banks frequently bid on the opportunity to finance the entire inventory of dealers selling automobiles, business and electronic equipment, and other durable goods through a ___________ arrangement. A. factoring B. floor planning C. project loan D. revolving line of credit E. None of the options is correct.

Q: When analyzing a commercial loan credit request, which of the following statements is (are) correct? A. The lender should check qualifications of the borrowing firm's management. B. The lender should evaluate the potential expenses incurred to service the loan. C. The lender should check whether adequate insurance coverage will be secured. D. The lender should consider the trends in market demand. E. All of the options are correct.

Q: A credit agreement in which a business customer may borrow up to a pre-specified limit, repay all or a portion of the borrowing, and reborrow as necessary until the credit line matures is known as a(an): A. interim construction. B. project loan. C. working-capital loan. D. revolving credit line. E. None of the options is correct.

Q: A loan whose principal is not due to be paid back until the loan's term ends and in which only interest is paid periodically during the life of the loan is called a (or an): A. working capital loan. B. project loan. C. bullet loan. D. interim construction loan. E. None of the options is correct.

Q: Business loans designed to fund long-term business investments, such as the purchase of equipment or the construction of physical facilities, covering a period longer than one year are known as: A. working capital loans. B. term loans. C. interim construction financing. D. durable goods loan. E. None of the options is correct.

Q: Short-term lending to support the construction of homes, apartments, office buildings, shopping centers, and other permanent structures is known as a (or an): A. self-liquidating. B. working capital loan. C. interim construction loan. D. asset-based loan. E. None of the options is correct.

Q: The amount of business lending tends to fall during recessionary periods.

Q: The amount of business lending tends to rise during periods of expansion.

Q: According to the textbook, small business lending by banks is on the decline.

Q: Syndicated loans are a type of working capital loan.

Q: A majority of classified syndicated loans are held by banks.

Q: The basic strength of the below-prime market pricing model is that there are narrow margins or markups on loans.

Q: The basic strength of the below-prime market pricing model is that it allows the bank to lend at low money market interest rates plus a small margin to cover risk exposure and provide a profit margin.

Q: The basic weakness of the cost-plus loan pricing method is that it gives little regard to the competition from other lenders while setting the loan price.

Q: The basic strength of the cost-plus loan pricing method is that it considers the competition from other lenders.

Q: The loan-pricing technique known as CPA, can be used to identify the most profitable types of bank customers, loans, and also the most successful loan officers.

Q: The loan-pricing method, that takes the whole customer relationship into account when pricing each loan request, is known as the cost-benefit loan pricing method.

Q: Banks attempting to compete with the growing commercial paper market developed the cost-plus business loan pricing method.

Q: If interest rates fall, a customer's loan rate will decline more rapidly under the times-prime method than under the prime-plus method of business loan pricing.

Q: In a period of rising interest rates, the times-prime method causes the customer's loan rate to rise faster than the prime-plus method.

Q: In order to control the risk exposure on their business loans most banks use both price and credit rationing to regulate the size and composition of their loan portfolios.

Q: The sum of the default-risk premium plus the term-risk premium on a business loan is one of the elements of the cost-plus loan pricing method.

Q: The price leadership model for long-term loan pricing includes a markup for default risk, but not for term risk.

Q: The business loan pricing method that relies upon banks knowing their costs, is the price leadership model.

Q: The ultimate standard of performance in a market-oriented economy is how much net income remains after all expenses (except stockholder dividends) have been charged against revenues.

Q: Liquidity indicators measure a business firm's ability to raise cash in a timely fashion at a reasonable cost.

Q: The firm's coverage ratios measure how carefully the firm's management monitor and control its expenses.

Q: When a bank examines a borrower's operating efficiency, it is looking at the protection afforded to creditors from the borrower's earnings.

Q: If a bank's agent visits a dealer using floor planning and finds any inventory items sold for which the bank providing finance has not received payment, the loan will be immediately foreclosed upon.

Q: Floor planning agreements typically include a loan-loss reserve, built up from interest earned as borrowers repay their installment loans.

Q: Under current federal laws, a lender is required to make an environmental site assessment of the borrower's property in order to avoid environmental liability.

Q: To avoid environmental liability under recent EPA guidelines, a lender must hold a deed of trust, lien, or mortgage.

Q: Under recent EPA guidelines, if a lender forecloses on environmentally damaged property, the lender must post that property for sale within 12 months after securing marketable title.

Q: Term loans look primarily to the flow of future earnings of the borrowing business firm to amortize and retire its loan.

Q: Term loans normally are secured by accounts receivable and inventory.

Q: A project loan is granted to several companies jointly sponsoring a large project, and the lender can recover funds from such sponsoring companies, if the project does not pay out as planned. This is known as a project loan granted on a recourse basis.

Q: Leveraged buyouts (LBOs) involve the purchase of businesses with at least 75 percent of the cost of the purchase funded by current earnings and sales of stock.

Q: Working-capital loans, unlike most other types of business loans, usually require the customer to keep a compensating deposit balance with the lending bank.

Q: Working capital loans are normally secured by a business firm's plant and equipment.

Q: An increasing portion of short-term lending in recent years has consisted of asset-based loans.

Q: Self-liquidating business loans are designed to take advantage of the normal cash cycle in a business firm.

Q: A concern in the banking and commercial finance industries today is that traditional inventory loans may be on the decline.

Q: Foreclosure on property pledged behind a bank loan does not subject a bank to be held liable to clean up any environmental damage the borrower may have caused.

Q: A third financial statement, used in addition to the income statement and balance sheet by lenders, is the __________. It is required by FASB and is usually readily available from borrowers.

Q: A firm's balance sheet figures expressed as a percentage of total assets are often called __________.

Q: The most risky of all business loans are __________. This is credit to finance the construction of fixed assets designed to generate a flow or revenue in future periods. This can include financing a new oil refinery, power plant, or other similar fixed assets.

Q: The apparent size bias in the financial marketplace led to the creation of the __________ in the 1950s, to guarantee loans made to small businesses by private lending institutions.

Q: ____________ is a type of short-term loan, where the business lenders support installment purchases of automobiles, home appliances, furniture, business equipment, and other durable goods by financing the receivables that dealers take on when they write installment contracts to cover customer purchases.

Q: _____________ provide businesses with short-term credit, lasting from a few days to about one year. These loans come close to self-liquidating loans.

Q: ___________ loans represent the earliest form of lending that banks have carried out in their more than 2,000-year history.

Q: The advent of inflation and more volatile interest rates gave rise to a(n) ____________, tied to changes in important money market interest rates such as the 90-day commercial paper rate.

Q: The ___________ is considered to be the most common base rate figure announced by the majority of the largest banks that publish their loan rates regularly.

Q: An interest rate most widely used to price large-denomination business loans extended by banks operating in the U.S. is ________.

Q: Weak loans considered to be substandard or doubtful are also known as __________ credits.

Q: SNCs are also known as _____________ loans.

Q: A proposed loan is acceptable to the lender when the net rate of return from a customer profitability analysis is _____________________.

Q: In the price leadership model, the amount above the prime rate is often called the ____________.

Q: ____________________________ is the cost to the lender for borrowing adequate funds in the cost-plus loan pricing model.

Q: The _______________________ is the risk premium that has to do with the time to maturity on the borrowed funds.

Q: The ______________________________________ is the risk premium that has to do with the quality of the borrower.

Q: ______________________ is the average deposit balance by the customer minus the average float adjusted for reserve requirements.

Q: The ______________________ is a way of pricing loans that allows a bank to take into account the entire relationship the bank has with the customer when pricing the loan.

Q: The ______________________________ is a way to price loans which allows banks to compete with the commercial paper rate.

Q: _____________________ is the rate on short-term Eurocurrency deposits which range in maturity from a few days to a few months.

Q: The ______________________ is the interest rate charged to the bank's most creditworthy customers on short-term working capital loans.

Q: The ______________________ approach to pricing a loan starts with a base interest rate and adds a risk premium for default and for time to maturity.

Q: _________________________________ is a way to price loans which starts with the costs of making a loan and adds to it a risk premium for default risk and a desired profit margin.

Q: Wages and salaries to net sales, overhead expenses to net sales, and cost of goods sold to net sales are all measures of ___________________________________________.