Week 1: Principles of Lending

Sophia wants to start a small business but lacks the necessary funds. She approaches a financial institution to help her secure a loan. What is the primary role of financial intermediation in lending?

• To eliminate the need for banks

• To reallocate surplus funds to finance companies

• To increase interest rates

• To create new currencies

Which of the following is NOT a principle of credit lending?

• Profitability

• Liquidity

• Generosity

• Safety

Aria is considering taking out a loan to buy a new car. What does the term 'principal' refer to in her loan?

• The interest rate charged

• The total amount borrowed

• The duration of the loan

• The borrower's credit score

David is considering taking a loan from his bank. Which principle ensures that the bank lends money to him only if he can repay it?

• Liquidity

• Safety

• Profitability

• Purpose

Kai is looking to take out a loan to start his own business. He wonders, what is the purpose of loan security?

• To reduce interest rates

• To increase the loan amount

• To eliminate the need for collateral

• To guarantee repayment of the loan

Anika is looking to start her own bakery and needs a loan to purchase equipment. What is the first step in the commercial lending process?

• Credit Monitoring

• Credit Approval

• Credit Origination

• Credit Control

What does 'credit verification' involve when Abigail applies for a loan?

• Determining the interest rate

• Evaluating the bank's liquidity

• Assessing the bank's profits

• Ensuring data provided by the customer is accurate

What happens if Anika's loan application is rejected?

• The bank must wait for a month

• The borrower is informed immediately

• No presentation is required

• It is automatically approved

Abigail is considering applying for a loan to start her own business. What is the purpose of credit monitoring in her situation?

• To increase loan amounts

• To ensure loans are used for intended purposes

• To reduce interest rates

• To eliminate the need for collateral

What is 'adverse selection' in lending?

• Lenders providing loans without evaluation

• Banks increasing interest rates

• Borrowers hiding their true financial status

• Lenders choosing the best borrowers