CHAPTER 1: AN OVERVIEW OF FUNDAMENTALS OF BANK CREDIT

Easy questions
What is the primary function of a bank?
A. To sell insurance
B. To provide financial services such as accepting deposits and lending money
C. To manufacture goods
D. To operate stock markets
2. What is a checking account primarily used for?f
A. Long-term savings
B. Day-to-day expenses and transactions
C. Investing in stocks
D. Earning high interest
3. What does FDIC stand for?
A. Federal Deposit Insurance Corporation
B. Federal Debt Insurance Corporation
C. Financial Deposit Insurance Corporation D. Federal Digital Investment
Corporation
4. Which of the following is a type of loan?
A. Savings account
B. Certificate of deposit
C. Mortgage
D. Checking account
5. What is the purpose of a savings account?
A. To earn interest on deposited funds
B. To pay bills online
C. To buy stocks
D. To transfer money between accounts
6. What is an interest rate?
A. The fee paid for insurance
B. The percentage of a loan amount charged for borrowing money
C. The price of a stock
D. The cost of opening a bank account
7. What is the term for the original amount of money borrowed or still owed on a
loan, separate from interest?
A. Principal
B. Collateral C. Equity
D. Premium
8. What is the role of a loan officer in a bank?
A. To manage investment portfolios
B. To evaluate and approve loan applications
C. To handle customer service inquiries D. To operate ATMs
9. What is collateral in banking terms?
A. A type of bank account
B. An asset that a borrower offers to a lender to secure a loan
C. A fee charged for late payment
D. The total amount of debt a person owes
10. Which of the following is considered a non-performing loan?
A. A loan with a fixed interest rate
B. A loan where the borrower has stopped making payments
C. A loan with a low interest rate D. A loan that is paid off early
11. What does the term "liquidity" refer to in banking?
A. The ability to earn high returns on investments
B. The ease with which assets can be converted into cash
C. The profitability of a bank
D. The total amount of loans issued by a bank
12. What is a credit card?
A. A card that allows purchases by borrowing money from the bank up to
a certain limit
B. A card linked to a savings account
C. A card that provides rewards for travel
D. A card used exclusively for online shopping
13. What is the mam difference between a fixed-rate and an adjustable-rate mortgage (ARM)?
A. Fixed-rate mortgages have a constant interest rate, while ARMs have interest
rates that can change
B. ARMs are always cheaper than fixed-rate mortgages
C. Fixed-rate mortgages are only for short-term loans
D. ARMs are only available for first-time homebuyers
14.What is a credit union?
A. A for-profit financial institution
B. A non-profit financial institution owned by its members
C. A government agency
D. A type of stock market
15. Which of the following is NOT a type of bank account?
A. Checking account
B. Savings account
C. Credit card account
D. Certificate of deposit (CD)
16. What is a bank's primary source of income?
A. Service fees
B. Interest from loans

C. Sales of financial products D.

Government funding

CHAPTER 2: CORPORATE AND BUSINESS LENDING

Easy questions
What is a time deposit?
A. A deposit that can be withdrawn anytime without penalty
B. A deposit that cannot be withdrawn before a set date without penalty
C. A deposit made in foreign currency D. A deposit that earns no interest
2. What is a bank's balance sheet?
A. A document that lists all the loans given by the bank
B. A financial statement showing the bank's assets, liabilities, and equity
C. A report on the bank's marketing activities D. A list of all the
employees of the bank
3. What is the purpose of a credit rating?
A. To evaluate the creditworthiness of borrowers
B. To calculate the interest on savings accounts
C. To set the price of stocks
D. To determine the fees for bank services

4. What is a bank's equity?

A. The total amount of money the bank owes
B. The bank's own funds contributed by the shareholders
C. The interest earned on loans
D. The fees charged for bank services
5. What does the term "asset management" refer to in banking?
A. The process of managing a bank's expenses
B. The management of investments on behalf of clients
C. The management of customer service operations D. The sale of bank-owned
properties
6. What is a trust service in banking?
A. A service that allows customers to write checks
B. A service that manages assets for individuals or organizations
C. A service that provides loans to businesses D. A service that insures deposits
7. What is a bank's capital?
A. The total amount of money in customer accounts
B. The funds provided by shareholders and retained earnings
C. The interest earned on investments
D. The total value of the bank's buildings
8. What is liquidity management in banking?
A. Managing the bank's loan portfolio
B. Ensuring the bank has enough cash to meet its obligations
C. Selling the bank's assets
D. Increasing the bank's interest rates Medium questions:
9. What is the purpose of a bank's capital adequacy ratio (CAR)?
A. To measure the bank's profitability
B. To ensure the bank can absorb a reasonable amount of loss and
complies with statutory capital requirements
C. To calculate the interest on savings accounts D. To determine the
bank's tax obligations
10. What is a loan loss provision?
A. An amount set aside by banks to cover potential loan defaults
B. The total interest earned from loans
C. The fee charged for processing loans D. The amount of loan
principal repaid I l. What is a syndicated loan?
A. A loan provided by a single bank
B. A loan provided by a group of banks to a single borrower
C. A loan that is insured by the government D. A loan that has no
collateral
12. What does the term "non-performing asset" (NPA) refer to?
A. An asset that does not generate income
B. A loan or advance where interest or principal repayment is overdue
C. A type of investment that has high returns

13. What is the significance of the liquidity coverage ratio (LCR)?

A. To ensure that banks maintain an adequate level of high-quality liquid assets
B. To measure the bank's overall profitability
C. To assess the bank's credit risk
D. To calculate the bank's loan interest rates
14.What is Basel 111?
A. An international regulatory framework for banks to strengthen regulation, supervision, and risk
management
B. A local banking policy
C. A type of bank account
D. A method for calculating loan interest
15.What is a callable bond?
A. A bond that can be redeemed by the issuer before its maturity date
B. A bond that cannot be sold before maturity
C. A bond that pays variable interest
D. A bond that is insured by the government
16.What is credit risk?
A. The risk that a bank's borrower or counterparty will fail to meet its obligations
B. The risk of changes in foreign
exchange rates
C. The risk of loss from fluctuating bond
prices D. The risk of interest rate changes

Easy questions:
What is a bank's primary objective in lending money?
A. To increase its liabilities
B. To earn interest income
C. To decrease its reserves
D. To attract more deposits
2. What does the term 'loan portfolio' refer to?
A. A collection of a bank's loans
B. A bank's list of clients
C. A bank's investments in stocks D. A
bank's equity holdings
3. What is a secured loan?
A. A loan that is backed by collateral
B. A loan with no interest
C. A loan with a fixed interest rate
D. A loan provided by the government
4. What is the purpose of a credit analysis?
A. To determine the interest rate for a loan
B. To assess the creditworthiness of a borrower
C. To calculate bank fees
D. To evaluate a bank's investment o tions
5 What does the term 'loan tenure' mean?
. A. The amount of the
loan
B. The period over
which the loan is repaid
C. The interest rate
of the loan D. The type of
collateral used What is an
unsecured loan?
A. A loan that requires collateral
B. A loan that does not require
collateral
C. A loan with a variable interest
rate
D. A loan with a fixed
repayment schedule
What is the difference between a fixed-
rate loan and a variable-rate loan?
A. Fixed-rate loans have higher
interest rates
B. Variable-rate loans do not have
interest
C. Fixed-rate loans have a constant
interest rate, while variable-rate
loans have an interest rate that
can change
D. Variable-rate loans require
collateral
What is the function of a loan
officer in a commercial bank?
A. To deposit money into accounts
B. To sell insurance policies
C. To evaluate and approve loan applications
D. To manage the bank's investment portfolio
Medium questions
9. What is the significance of the net interest margin (NIM) for a commercial bank?
A. It measures the profitability of a bank's lending activities
B. It calculates the bank's operational expenses
C. It evaluates the credit risk of borrowers D. It determines the bank's
total assets
10. What is a loan covenant?
A. A type of loan with no interest
B. A condition placed on a borrower by a lender
C. A form of collateral
D. A government loan program
I l. What is the significance of a bank's liquidity ratio?
A. It measures the bank's ability to meet short-term obligations
B. It indicates the bank's profitability
C. It calculates the interest rate on loans D. It evaluates the bank's loan
quality
12. What is a non-performing loan (NPL)?
A. A loan that is fully repaid on time
B. A loan that is in default or close to being in default
C. A loan with no interest
D. A loan that is backed by collateral

13. What does the term 'securitization' refer to in banking?

A. The process of pooling various types of debt and selling them as bonds to investors
B. The practice of insuring bank deposits
C. The evaluation of a borrower's creditworthiness D. The issuance of new
equity shares
14. Which of the following statements is CORRECT?
A. If Firms A and B have the same earnings per share and market-to-book
ratio, they must have the same price earnings ratio.
B. If Firms A and B have the same net income, number of shares
outstanding, and price per share, then their market-to-book ratios must
also be the same.
C. If Firms A and B have the same net income, number of shares
outstanding, and price per share, then their P/E ratios must also be the
same.
D. If Firms A and B have the same P/E ratios, then their market-to-book
ratios must also be the same.
E. If Firm A's P/E ratio exceeds that of Firm B, then B is likely to be less
risky and also to be expected to grow at a faster rate.

15. Companies HD and LD have the same total assets, sales, and operating costs, and
they pay the same interest rate on their debt. However, company HD has a higher
debt ratio. Which of the following statements is CORRECT?
A. Company LD has a higher basic earning power ratio (BEP).
B. Company HD has a higher basic earning power ratio (BEP).
C. If the interest rate the companies pay on their debt is more than their basic earning
power (BEP), then Company HD will have the higher ROE.
D. If the interest rate the companies pay on their debt is less than their basic
earning power (BEP), then Company HD will have the higher ROE. E.
Given this information, LD must have the higher ROE.
16. If a bank loan officer were considering a company's request for a loan, which of the
following statements would you consider to be CORRECT?
A. The lower the company's TIE ratio, other things held constant, the lower
the interest rate the bank would charge the firm.
B. The lower the company's EBITDA coverage ratio, other things held constant, the
lower the interest rate the bank would charge the firm.
C. Other things held constant, the lower the current asset ratio, the lower the
interest rate the bank would charge the firm.
D. Other things held constant, the lower the debt ratio, the lower the interest
rate the bank would charge the firm.
E. Other things held constant, the higher the debt ratio, the lower the interest
rate the bank would charge the firm.
17. Walter Industries' current ratio is 0.5. Considered alone, which of the following
actions would INCREASE the company's current ratio? A. Use cash to reduce
short-term notes payable.
B. Use cash to reduce accounts payable.
C. Borrow using short-term notes payable and use the cash to increase
inventories.
D. Use cash to reduce long-term bonds outstanding.
E. Use cash to reduce accruals.

18. A company has current assets of $150,000, inventory of $50,000, and current
liabilities of $100,000. What is the company's current ratio?

B) 1.5
C) 2.0
D) 2.5
19. A business has cash of $30,000, accounts receivable of $20,000, inventory of
$25,000, and current liabilities of $40,000. What is the company's quick ratio?
A) 0.75
B) 1.0
C) 1.25
D) 1.5
20. A company has a cost of goods sold (COGS) of $500,000 and an average
inventory of Sl 00,000. What is the inventory turnover ratio?
A) 3 times
B) 4 times
C) 5 times D) 6 times
z 1. A retali Dusmess reports an annual cost or goocts sold 01 / 'u,uuu. 1 ne beginning
inventory was S 100,000, and the ending inventory was Sl 50,000. What is the
inventory turnover ratio?
A) 4.29 times
B) 5 times
C) 6 times
D) 7.5 times
22. A company's annual sales are and its cost of goods sold (COGS) is $600,000.
The beginning inventory is $80,000, and the ending inventory is $120,000.
What is the inventory turnover ratio?
A) 5 times
B) 6 times C) 7.5 times
D) 8 times
23. A business has short-term debt of Sl 00,000, long-term debt of $200,000, and total equity
of $400,000. What is the debt-to-equity ratio?
A) 0.5
B) 0.6
C) 0.75
D) 0.8
24. A company has an operating income (EBIT) of $300,000 and interest expenses of
$50,000. What is the company's times interest earned (TIE) ratio?
A) 4 times
B) 5 times
C) 6 times
D) 7 times

25. A corporation reports an EBIT of $500,000 and interest expenses of $75,000.

What is the company's times interest earned (TIE) ratio?
A) 4.5 times
B) 6.5 times
C) 6.67 times
D) 8 times
26. A company has a net income of $200,000, total assets of Sl and total equity of
$600,000. What is the company's Return on Equity (ROE)?
A) 20%
B) 25%
C) 30%
D) 33.33%
27. A company's net income is $300,000, total assets are and total equity
is Sl ,200,000. What is the company's Return on Equity (ROE)?
A) 20%
B) 22.5%
D) 30%
28. A corporation has a net income of $250,000 and total assets of $3,000,000. If its total
equity is S 1,200,000, what is the company's Return on Assets (ROA)?
A) 7.5%
B)
8.33%
C) 8.5%

CHAPTER 3: CONSUMER AND REAL ESTATE LENDING

Easy questions:
What is a personal loan?
A. A loan given to businesses
B. A loan provided to individuals for personal use
C. A loan for purchasing stocks
D. A loan for buying government bonds
2. What is a mortgage?
A. A loan used to purchase real estate
B. A loan for buying a car
C. A loan for starting a business D. A loan without any interest
3. What does APR stand for?
A. Annual Payment Rate B.
Annual Percentage Rate
C. Annual Principal Rate
D. Annual Profit Rate

4. What is a credit score?

A. A measure of an individual's creditworthiness
B. The amount of credit available
C. The interest rate on a loan D. The term length of a loan
5. What is the minimum payment on a credit card?
A. The full balance owed
B. A fixed percentage of the outstanding balance
C. The total interest accrued
D. The amount required to open the account
6. What is a fixed-rate mortgage?
A. A mortgage with an interest rate that remains the same for the
entire term
B. A mortgage with an interest rate that changes periodically
C. A mortgage with no interest
D. A mortgage that can be paid off early without penalty Medium
questions:
7. What is a home equity loan?
A. A loan secured by the borrower's equity in their home
B. A loan for purchasing a second home
C. A loan without any interest
D. A loan with a variable interest rate
8. What does the term 'debt-to-income ratio' refer to?
A. The ratio of a person's debt payments to their gross income
B. The ratio of interest paid to total debt
C. The ratio of savings to total income
D. The ratio of principal to interest on a loan
9. What is a personal line of credit?
A. A fixed-term loan for personal use
B. A revolving credit that allows the borrower to draw funds up to a certain limit
C. A type of credit card
D. A loan for buying a car
10. What is a subprime mortgage?
A. A mortgage for borrowers with high credit scores
B. A mortgage for borrowers with low credit scores
C. A mortgage with a fixed interest rate D. A mortgage with no down
payment
I l. What is the purpose of mortgage insurance?
A. To protect the lender in case the borrower defaults
B. To lower the interest rate on the loan
C. To cover the cost of home repairs
D. To insure the property against damage

12.What is the purpose of a loan amortization schedule?

A. To show the breakdown of each loan payment into interest and
principal
B. To determine the interest rate on a loan C. To calculate the loan's total
interest
D. To outline the loan application process
13. What is a payday loan?
A. A short-term, high-interest loan intended to be repaid on the
borrower's next payday
B. A long-term loan with low interest
C. A loan for purchasing a car
D. A loan with no interest 14. What is the mam purpose of a debt-to-
income (DTI) ratio when assessing an individual's loan application?
A. To determine the total amount of assets an individual owns
B. To evaluate the proportion of an individual's income that goes towards
debt repayment
C. To calculate the interest rate that should be applied to the loan
D. To assess the creditworthiness based on an individual's credit history
15. Why do banks require a property valuation when providing a mortgage loan?
A) To determine the interest rate
B) To assess the risk and determine the loan amount
C) To ensure the borrower has insurance D) To verify the borrower's credit score
16. What is a Loan-to-value (LTV) ratio?
A) The ratio of the loan amount to the property's income
B) The ratio of the property's market value to its replacement cost
C) The ratio of the loan amount to the appraised value of the property
D) The ratio of the property's size to the loan amount
17. How does a higher Loan-to-Value (LTV) ratio affect the interest rate on a mortgage loan?
A) It decreases the interest rate
B) It has no effect on the interest rate
C) It increases the interest rate
D) It depends on the borrower's credit score
18. What role does property valuation play in providing a home equity loan?
A) It determines the term of the loan
B) It helps in assessing the borrower's creditworthiness
C) It determines the available equity for borrowing
D) It sets the monthly payment amount
19. Which of the following is NOT a factor considered in the property appraisal process for a
bank loan?
A) Location of the property
B) Borrower's employment history
C) Condition of the property
D) Comparable sales in the area

20. What does a bank typically do if the appraised value of the property is lower
than the purchase price?
A) Approves the loan for the purchase price
B) Rejects the loan application
C) Approves a lower loan amount based on the appraised value D) Increases the interest
rate
21. How does the condition of a property affect its valuation for loan purposes?
A) It has no impact on the valuation
B) Better condition can lead to a higher valuation
C) Poor condition leads to a higher valuation
D) The condition only affects the interest rate, not the valuation
22. A property is appraised at $800,000. If the bank's policy is to maintain an LTV
ratio of 70%, what down payment is required from the borrower to purchase the
property?
A) S160,ooo B) S240,ooo C) $320,000
D) S400,ooo
23. A property is appraised at $500,000. If a bank offers a loan with an 80%
Loan-to-Value (LTV) ratio, what is the maximum loan amount the bank will provide?
A) S350,ooo B) S400,ooo
c) S450,ooo
D) S500,ooo
24. A commercial property generates an annual net operating income (NOI) of
$120,000. If the capitalization rate is 8%, what is the estimated value of the
property?
A) S960,ooo

25. A retail property has an annual net operating income (NOI) of $75,000. Using a
capitalization rate of 6%, what is the value of the property?
26. A commercial property generates an annual net operating income (NOI) of
$100,000, which is expected to grow at a constant rate of 3% per year. If the
capitalization rate is 8%, what is the estimated value of the property?

27. An office building has a current NOI of S200,000, with an expected annual
growth rate of 2%. If the capitalization rate is 7%, what is the value of the
building?

28. A retail property generates an initial NOI of S 150,000, expected to grow at 4%

annually. Using a capitalization rate of 9%, what is the estimated value of the
property?

29. A borrower takes out a $300,000 mortgage at an annual interest rate of 4% for 30
years. What is the monthly mortgage payment?
A) Sl,340.57
B) Sl,432.25
C) Sl,530.15
D) Sl,645.35
30. What is the total interest paid over the life of a $250,000 mortgage at a 5%
annual interest rate for 20 years?
A)
S150,ooo
B)
S153,575
C)
$158,774
D) S165,839
31. After 5 years, what is the remaining balance on a $200,000 mortgage at 4.5% annual
interest for 30 years?
A) S175,851
B) S182,345 C) $189,674
D) S195,678
32. A $150,000 mortgage at a 3.5% annual interest rate for 15 years results in a
monthly payment of $1,072.32. What is the total principal paid after 10 years?
A) S50,967
B) S60,459
C) $75,623
D) S90,ooo
33. A borrower takes a $350,000 mortgage at a 6% annual interest rate for 25 years.
What is the total amount paid over the life of the loan?
A) S617,729
B) S642,732 C) $670,105
D) S689,340

CHAPTER 4: CREDIT RISK MANAGEMENT

Easy questions:
What is credit risk?
A. The risk that a borrower will default on a loan
B. The risk of interest rate changes
C. The risk of operational failures
D. The risk of currency fluctuations
2. What does the term 'default' mean in banking?
A. The borrower has repaid the loan in full
B. The borrower has missed a payment on a loan C. The
bank has increased the interest rate
D. The loan has been transferred to another bank
3. What does 'underwriting' refer to in banking?
A. The process of issuing a loan
B. The process of evaluating the credit risk of a loan application
C. The process of repaymg a loan
D. The process of transferring a loan
4. What is interest rate risk?
A. The risk of currency fluctuations
B. The risk of interest rate changes affecting the bank's profitability
C. The risk of operational failures D. The risk of loan defaults
5. What is a forward rate agreement (FRA)?
A. A contract to borrow money at a fixed rate in the future
B. A type of fixed deposit account
C. An agreement to exchange currencies at a future date D. An insurance
policy against interest rate changes
6. Which of the following is NOT a tool for managing credit risk?
A. Credit scoring
B. Collateral
C. Insurance
D. Market timing
7. What is the role of regulatory capital in credit risk management?
A. To provide a cushion against potential losses
B. To ensure that banks have sufficient resources to meet their obligations
C. To reduce the likelihood of a bank failure D. To all of the above

Medium questions:
8. What is the purpose of stress testing in credit risk management?
A. To evaluate a bank's ability to withstand economic shocks
B. To determine the interest rate on a loan C. To
calculate the bank's profit margin
D. To assess a borrower's creditworthiness
9. What is the purpose of a credit risk management framework?
A. To outline the processes and policies for managing credit risk
B. To calculate the bank's total assets
C. To determine the loan interest rates
D. To manage the bank's investment portfolio
10. What does the term 'probability of default (PD)' mean?
A. The likelihood that a borrower will default on a loan
B. The interest rate on a loan
C. The total amount of a bank's loans D. The repayment term of a loan
I I. What is the primary objective of credit risk management in banking?
A. To eliminate all credit risk
B. To minimize credit risk to an acceptable level
C. To maximize profits
D. To comply with regulatory requirements
12.Which of the following is NOT a component of credit risk?
A. Default risk
B. Concentration risk
C. Liquidity risk
D. Market risk
13. What is the difference between a non-performing loan and a bad debt?
A. A non-performing loan is a loan that is in default, while a bad debt is a loan that is
unlikely to be repaid.
B. A bad debt is a loan that is in default, while a non-performing loan is a
loan that is unlikely to be repaid.
C. There is no difference between a non-performing loan and a bad debt.
D. A non-performing loan is a loan that has been written off, while a bad debt is a
loan that is still on the bank's books.
14. What is the purpose of loan loss provisioning?
A. To absorb potential losses on loans
B. To reduce the risk of a bank failure
C. To comply with regulatory requirements
D. To all of the above
15. What are the challenges of credit risk management in the current economic environment?
A. Increased volatility in financial markets
B. Rising levels of corporate debt
C. Low interest rates D. All of the above

CHAPTER 5: LOAN PORTFOLIO MANAGEMENT

Easy questions:
What is loan portfolio management?
A. The process of providing loans to customers
B. The process of managing a bank's collection of loans to optimize
returns and mmmuze risk
C. The process of setting interest rates for loans D. The process of
approving loan applications
2. What is the primary goal of loan portfolio management?
A. To maximize the number of loans issued
B. To mimmize the interest rates on loans
C. To balance risk and return by managing the mix of loans D. To
increase the loan processing time
3. Which of the following is a key component of loan portfolio management?
A. Market analysis
B. Credit analysis
C. Product development D. Marketing strategies
4. What is diversification in the context of loan portfolio management?
A. Concentrating loans in a single industry
B. Spreading loans across various sectors to reduce risk
C. Increasing the loan amounts for high-risk borrowers
D. Reducing the number of loans offered
5. What is loan concentration risk?
A. The risk associated with having too many loans in a single borrower
or sector
B. The risk of loan defaults in a diversified portfolio
C. The risk of high-interest rates D. The risk of low credit scores
6. What is the purpose of stress testing in loan portfolio management?
A. To determine the profitability of loans
B. To evaluate the potential impact of adverse economic scenarios on the
loan portfolio
C. To increase loan approvals
D. To reduce the interest rates on loans
7. What is a non-performing loan (NPL) in the context of loan portfolio
management?
A. A loan that is repaid on time
B. A loan that is in default or close to being in default
C. A loan with low interest rates D. A loan with no collateral
8. Why is monitoring loan performance important in loan portfolio management?
A. To increase the loan processing time
B. To ensure timely repayment and identify potential issues early
C. To diversify the loan portfolio
D. To set higher interest rates
CHAPTER 4: CREDIT RISK MANAGEMENT
Easy questions:
What is credit risk?
A. The risk that a borrower will default on a loan
B. The risk of interest rate changes
C. The risk of operational failures
D. The risk of currency fluctuations
2. What does the term 'default' mean in banking?
A. The borrower has repaid the loan in full
B. The borrower has missed a payment on a loan C. The
bank has increased the interest rate
D. The loan has been transferred to another bank
3. What does 'underwriting' refer to in banking?
A. The process of issuing a loan
B. The process of evaluating the credit risk of a loan application
C. The process of repaymg a loan
D. The process of transferring a loan
4. What is interest rate risk?
A. The risk of currency fluctuations
B. The risk of interest rate changes affecting the bank's profitability