Pre Exam CICC Day 15

To remain viable, a business considers introducing new products or services, merging with a competitor, re-engineering its operations to improve efficiency or moving into different product lines or geographic markets. What life cycle stage is this business most likely in?

• Maturity

• Adolescence

• Growth

• Start-up

Why is it important to understand the risk associated with a given industry?

• It is usually different form the business-specific market risk

• It compensates for a business’s financial risk

• It has an impact on the overall credit risk of businesses within that industry

• It offsets the market (industry and business) risk associated with a specific business within the industry.

Which statement accurately describes market overcapacity?

• Product prices are higher than the market is willing to pay

• Product quality is lower than the market demands

• Product sold into the marketplace is obsolete

• There is more of a product on the market than customers will buy a given price

What industry would be considered low risk?

• Restaurant

• Department store

• Airline industry

• Biotechnology

Which of the following accurately describes the stages of an industry or business life cycle?

• Start-up, adolescence, growth, maturity, and decline or transition

• Start-up, adolescence, growth, decline or transition, and maturity

• Start-up, growth, adolescence, maturity, and decline or transition

• Start-up, growth, adolescence, decline or transition, and maturity

What statement considering risk and the stage of the industry’s life cycle is most accurate?

• Growing and declining industries generally carry more risk, whereas emerging and mature industries tend to be less risky.

• Mature and declining industries generally carry more risk, whereas growing and emerging industries tend to be less risky.

• Emerging and growing industries generally carry more risk, whereas declining and mature industries tend to be less risky.

• Emerging and declining industries generally carry more risk, whereas growing and mature industries tend to be less risky.

What is a typical result of market overcapacity?

• The market cannot support any volume of a product being made available for sale at any price points and profit margins

• The market cannot support the full volume of a product being made available for sale at acceptable price points and profit margins

• The market cannot support any volume of a product being made available for sale at acceptable price points and profit margins

• The market cannot support the full volume of a product being made available for sale at any price points and profit margins

Which statement below is the most accurate with respect to market overcapacity?

• Significant overcapacity impacts neither the price of a product nor the demand

• Significant overcapacity impacts the demand for a product but not the product’s price

• Significant overcapacity in the market increases the credit risk associated with that market

• Significant overcapacity impacts the price of a product but not the demand for the product

In addition to the borrower’s life cycle stage, which other market-related factor can affect overall credit risk?

• Financial strength of the borrowing firm

• Integrity of the firm’s management team

• Stage of the industry life cycle

• Lender’s credit policies and procedures

What elements of a business are typically affected by market overcapacity?

• Cash flow, ability to repay debt and staying power

• Ability to repay debt and staying power but not cash flow

• Cash flow and staying power but not ability to repay debt

• Cash flow and ability to repay debt but not staying power