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level: Level 1

Questions and Answers List

level questions: Level 1

Question	Answer
The risk that a loan might not be repaid	Credit Risk
the risk that the operational system may fail	Operational Risk
Obligations have to be paid in a currency other than that of the domestic currency	Currency Risk/ Exchange Risk
The Impact of changing interest rates	Interest Rate Risk
Changes in market price of commodities, securities or foreign exchange	Market Risk
An obligation is not in the domestic currency of the country in which it occurs	Country (Transfer) Risk
character, capacity, capital, collateral, condition	What are the Five (5) C's of credit/ lending?
Combination of qualities that distinguishes one person from the next	Character
collecting information about the borrower’s track record of integrity, repayment ability and spending habits.	Describe character assessment.
the ability to repay the loan with interest as per the predetermined schedule	Capacity
Soundness of a borrower's financial position and borrower must be able to generate sufficient net income to service the loan repayment.	two key factors of a borrower's capacity
Asset and liabilities (personal loans) Audited financial statements and projected cash flow (businesses) Ability of the business’ creditors to pay their debts	Explain the soundness of a borrower's financial position.
The contribution the borrower promises to make in the total investment.	Capital
second source of repayment	Collateral
stability of value, marketability, be easily valued, durable and portable.	Qualities of good collateral
the price of the security must not be subject to wide fluctuations.	Stability of value
should be rated good must be able to sell it.	Marketable
ability of an asset to withstand wear or to its useful life.	Durability
the lender should be able to sell it in another market.	Portability
Refers to the internal and external factors.	Condition
Macro-economic variables	External factors
lending policies, lending budget and availability of expert staff to monitor loan.	Internal factors
Introduction of the customer, Application by the customer, Review of the application, Evaluation and Monitoring and control	Five stages to analyze a new loan
can be with an customer where it is established that the person is honest and trust worthy. If it is another FI’s customer, establish why that FI is not lending. Also Still be cautious if introductions are made by professional advisors or accountants	Introduction of customer
Entails plan to repay and contingency plans.	Application of customer
CHARACTER, ABILITY MARGIN, PURPOSE, AMOUNT, REPAYMENT, INSURANCE( SECURITY)	Review of application
Character	"C" in CAMPARI stands for?
Ability or Amount	"A" in CAMPARI stands for?
Margin	"M" in CAMPARI stands for?
Purpose	"P" in CAMPARI stands for?
Repayment	"R" in CAMPARI stands for?
Insurance or security	"I" in CAMPARI stands for?
Agreement should be reached at the outset with the borrower in respect of interest margin (reflection of the risk involved in lending), commission and other fees (determined by the amount and complexity of the work involved).	Margin
An assessment of the FEASIBILITY of the borrower’s plan for repayment. A critical appraisal of WHAT MIGHT REALISTICALLY GO WRONG-the likelihood of such events occurring and the effect on the lender’s position.	Evaluation
Lender must review progress regularly Early detection can be controlled by offering advice	Monitor and Control
econometric techniques	Approaches to credit measurement
involved in modeling of the probability of default.	econometric techniques
use mathematical programming techniques to minimize lender error and thus maximise profits. Neural networks try to emulate the human decision-making process using data as used in econometric techniques. Hybrid systems involve establishing causal relationships by estimating the parameters of such relationships.	Optimisation models
Increased competition in the loan market.	What are the factors that influence technology based credit risk analysis?