Q&A Hero

Q: A capital investment is more liquid than stocks or bonds. a. True b. False

Q: Sovereign wealth funds use money that is part of a countrys official currency reserves. a. True b. False

Q: Every business, no matter how large or small, needs to disburse and collect cash to complete business transactions. a. True b. False

Q: Health insurance pays benefits when the holder is unable to earn a living because of illness or injury. a. True b. False

Q: The Single Euro Payments Area (SEPA) designates specific bank branches within major European cities where customers can go to pay bills for items purchased in other countries. a. True b. False

Q: The most common type of trade financing involves a letter of credit. a. True b. False

Q: Foreign bank branches operating in the United States can only accept depositsless than $100,000from U.S. citizens. a. True b. False

Q: The number of banks that help companies conduct business overseas is declining. a. True b. False

Q: What is the debt service coverage ratio (DSCR)? What kind of DSCR is desirablehigh or low? Why? What is indicated by a DSCR of less than 1.0?

Q: How do lines of credit work for a business? How are they often used?

Q: Name two factors regarding the building itself that underwriters must assess in order to determine whether a business construction loan is sound.

Q: Describe the investment strategy of a risk preferrer.

Q: Businesses frequently need loans to help with cash flow problems. Briefly explain the best time for a business to obtain such a loan.

Q: Briefly explain the SBA Microloan program.

Q: Name at least four financial records or documents a lender will typically examine when a business applies for a loan, including one that applies to small businesses only.

Q: What kind of loan-to-value ratio do commercial lenders want to see when considering a businesss mortgage application?

Q: List at least five advantages a business gains by leasing rather than purchasing equipment.

Q: How do commercial real estate requirements differ from requirements for private residential mortgages?

Q: Assume that gross income is $1.5 million; total cost of debt is $600,000; and the debt service coverage ratio is 1.5. Find net operating income.

Q: Find the debt service coverage ratio if gross income is $740,000; net operating income is $444,000; and total cost of debt is $400,000.

Q: An underwriter has the following data for a company: monthly income: $9,000; monthly debt: $5,000; loan principal: $40,000; market value: $70,000; gross income: $175,000. Use this data to find the loan-to-value ratio (expressed as a percentage).

Q: Milford Manufacturing Company has a debt ratio of 60 percent. If the companys debt is $300,000, find the companys income.

Q: The XYZ Company has debt of $500,000 and income of $2.5 million. Find the debt ratio for the XYZ Company (expressed as a percentage).

Q: Products that lack an underlying value in their assets are called __________________________.

Q: ________________ occurs when people make investments based on anticipated or hoped-for outcomes, without having an ownership stake in the asset being insured.

Q: Many banks offer ____________________ loans to meet the inventory financing needs of small and mid-sized businesses. These types of loans include flexible credit limits to accommodate seasonal needs.

Q: The SBAs ____________________ program consists of about 40 for-profit corporations that raise and distribute venture capital to promising businesses.

Q: The Small Business Administration (SBA) ____________________ programis the SBAs most popular loan program and the foundation of the agency.

Q: Net ____________________ income is gross income minus expenses, taxes, insurance, utilities, and so forth.

Q: The ____________________ ratio is the principal amount of the loan divided by the value of the securing property.

Q: A companys ____________________ ratio is the total obligations compared to the total income.

Q: The ____________________conducts an annual survey of national banks to determine trends in lending standards and credit risks as reflected in underwriting practices.

Q: A(n) ____________________ loan is a particular form of short-term loan used to cover expenses until long-term financing is in place.

Q: A business loan that finances working capital would probably be a(n) ____________________ loan.

Q: The greatest start-up cost of new businesses is often ____________________.

Q: Lending to business enterprises is called ____________________ lending.

Q: Which of the following is a merchandising business? a. automobile factory b. coal mine c. ice-cream shop d. steel mill

Q: Which of the following is an approved use of an SBA-backed loan? a. to pay delinquent taxes b. to purchase new equipment c. to pay existing debt d. to finance floor plan needs

Q: A high DSCR indicates that a company has a. barely any operating income available for debt service. b. taken on more debt than it has operating income. c. a good bit of operating income available for debt service. d. a negative cash flow.

Q: Debt Income = a. debt ratio. b. debt service coverage ratio. c. LTV ratio. d. income ratio.

Q: A form of asset-based lending that advances cash to a business in exchange for its receivables is called a. a line of credit. b. leasing. c. a bridge loan. d. factoring.

Q: Most short-term business loans are for a. six months or less. b. one year or less. c. two years or less. d. five years or less.

Q: Which of the following would a business probably NOT finance by a term loan? a. real estate b. equipment c. increasing inventory d. business expansion

Q: Equipment loans are often tied to all of the following except a. the equipment itself. b. the financial position of the borrower. c. redevelopment of the businesss real estate. d. the businesss overall cash flow.

Q: Which of the following type of business loan is often packaged with a real estate loan? a. equipment loan b. construction loan c. operations loan d. automobile loan

Q: Which of the following types of lending accounts for the largest dollar market? a. commercial lending b. consumer lending c. mortgage lending d. government lending

Q: Merchandisers sell goods or services. a. True b. False

Q: Charitable organizations are not eligible for SBA loan guaranties. a. True b. False

Q: The government supports more than a billion dollars in loans each year to American businesses through the Small Business Administration. a. True b. False

Q: Manufacturers build items to sell to merchandisers. a. True b. False

Q: Unlike consumer lending, most commercial lending is regulated only by the terms of the loan agreement and some state laws. a. True b. False

Q: It is more difficult for lenders to evaluate business loan applications than consumer loan applications. a. True b. False

Q: Recent history has proven that financial markets can effectively self-regulate. a. True b. False

Q: Contract financing is secured by the value of a specific contract. a. True b. False

Q: Short-term loans are always for small amounts of money. a. True b. False

Q: Almost no business can exist without financing debt. a. True b. False

Q: Commercial lending practices can apply to individuals as well as businesses. a. True b. False

Q: Why have mortgages traditionally been considered an attractive investment for lenders?

Q: What are the requirements for lenders who wish to participate in the Fannie Mae program?

Q: Why are lenders interested in the appraised value of a property before deciding whether or not to grant a mortgage loan?

Q: What forms do home equity loans usually take? How is a home equity loan different from a typical consumer loan?

Q: Are interest rates for fixed rate mortgages usually higher or lower than for other types? Why?

Q: During the recent mortgage crisis, what kept struggling homeowners from using the help of credit counselors to renegotiate the interest rates on their homes?

Q: Name five types of loans that used lowered lending criteria and contributed to the mortgage crisis.

Q: What is the Federal National Mortgage Association?

Q: What constitutes a high-interest loan, as defined by HOEPA?

Q: What is the loan-to-value relationship?

Q: What are the four components of PITI?

Q: What is the adjustment interval on an ARM?

Q: What is a foreclosure?

Q: Guardian Bank will lend no more than 95 percent of the appraised value of a house to a prospective buyer. The house Yoko and Akira wish to purchase has been appraised at $110,000. What is the maximum amount that Guardian Bank would be willing to lend them?

Q: Calculate the monthly cost of private mortgage insurance (PMI), using the typical PMI rate of 1/2 of 1 percent, for a principal balance of $165,000.

Q: Four years ago, Mavis and Lester purchased a $200,000 home with $25,000 down. The remaining principal on the home is $165,000. Suppose the home has appreciated in value during that time to $250,000. Find Mavis and Lesters equity in the home.

Q: When Sylvia bought her house two years ago, it was worth $75,000. The value of the house has appreciated 4 percent in each of the past two years. What is Sylvias house worth now?

Q: What is the value of 3 points on a mortgage loan of $150,000?

Q: _________________________occurs when the amount owed on a home is more than the current value of the home.

Q: The highest bond rating a security can receive is a(n) ____________________ rating.

Q: The Federal Home Loan Mortgage Corporation is better known as ____________________.

Q: The refusal of banks to lend to residents of certain neighborhoods is called ____________________.

Q: ____________________ mortgage insurance (PMI) protects the lender against loan default.