Moody's Practice Test 2

What is the main purpose of conducting a competitive analysis during the loan pricing decision process?

• To calculate the lowest lending rate the bank is willing to apply to theloan
• To determine the probability of loss based on the competitor’s ratepricing
• To persuade the relevant committee to approve a lending rate lower than those of competitors.
• To determine whether the lending rate should be adjusted based on the ceiling established by other lenders.

What part of the loan pricing process sets an interest rate floor, below which the loan is financially undesirable?

• Cost analysis.
• Loanstructuring
• Loanaccounting.
• Competitive analysis

What is meant by the term “excess borrowings” under the Tandon Committee approach to lending?

• The amount borrowed exceeds current liabilities
• The liquidity level exceeds the minimum required.
• The maximum permissible bank borrowings exceed current assets.
• The minimum required net working capital exceeds the actual amount.

Which describes the absolute priority rule with respect to payments made to creditors at default?

• Subordinated debt is paid before insolvency-related costs.
• Available funds are paid first to the lowest ranked class until the borrower’s obligations are fully satisfied.
• Available funds are paid first to the highest ranked class until the borrower’s obligations are fully satisfied
• Distributions to each ranked class are paid out proportionately based on its percentage in the company's capital structure

At what stage in the management cycle should the management consider the effect of changes in the external environment on the company’s business goals?

• Assessing business needs
• Developing plans to meet goals
• Aggregating and organising resources.
• Adjusting plans, resources, and methodologies.

What factor plays a key role in influencing the industry due to a large bargaining power of a significant supplier?

• Labour disruptions
• Liberal credit terms
• Decreased sales prices
• Improved service levels

How might an inadequate management succession plan affect a business’s cash flow?

• Training the new managers to address their skill gaps may result in excessive costs.
• Cost of hiring for the positions vacated due to promotion of the new managers will impact the cash flow.
• Weak relationship of the new managers with the bank staff may result in the credit facilities not being renewed
• Poor decisions of the new managers that lack sufficient skills or experience might result in weaker business performance.

Which best describes the effect that political decisions and frequent legislation changes in India have on its business and industry risk?

• Banks absorb most of the impact and businesses are less affected as a result.
• Taxation policies cause businesses to be less transparent in their financial reporting.
• Opportunistic decisions that influence monetary policy can negatively affect a business’s financial performance
• Demonetisation of high denomination currency notes is an example of legislation that negatively affects small businesses working with cash.

What is considered as one of the three levels of oversight in the corporate governance process?

• The media.
• The regulators.
• The board of directors
• Banks and other lenders

How can a company’s management best minimise the impact of potential interruptions in the input supplies?

• Obtain supplier insurance
• Hold large stocks for all key supply inputs
• Maintain good personal rapport with the key input suppliers.
• Ensure that there is an alternate supply source for all key inputs.