COMMERCIAL BANKING FINAL EXAM QUESTIONS AND
VERIFIED ANSWERS
5 C's of Credit - CORRECT ANSWER✅✅✅1. Character
2.Capacity
3.Collateral
4.Conditions
5.Captial
In the 5 C's of credit what is character - CORRECT ANSWER✅✅✅specific purpose of the loan and the
seriousness of the borrower's intent to repay
In the 5 C's of credit what is capacity - CORRECT ANSWER✅✅✅legal authority to sign a binding
contract and the sufficiency of the borrower's cash flow to service the loan
In the 5 C's of credit what is collateral - CORRECT ANSWER✅✅✅adequate assets to support the loan
in the case of default - measured by a value ratio
may include personal security of the borrower
In the 5 C's of credit what is conditions - CORRECT ANSWER✅✅✅assessing the impact of changing
economic conditions on the borrower's ability to repay
In the 5 C's of credit what is capital - CORRECT ANSWER✅✅✅assessment of the adequacy of the
borrower's capital to prevent insolvency (see collateral)
Information used to assess the five Cs of credit analysis will generally vary by _____ ______ _____
Includes things such as company type, financial ratios, profitability, market data, financial information
for corporations; Personal info for retail customers - CORRECT ANSWER✅✅✅type of loan
Question 1: The difference between
Uncertainty and Risk is that
,a. With risk, the potential outcomes can be identified and measured while with uncertainty they cannot
b. With risk, the probabilities of potential outcomes can be estimated while with uncertainty the cannot
c. Risk requires both (a) and (b)
d. There is no meaningful difference between risk and uncertainty
e. None of the above answers are accurate - CORRECT ANSWER✅✅✅C Risk requires both (a) and (b)
Question 2: According to a research report conducted by
the Federal Reserve Bank of New York, approximately 46%
of earnings volatility can be explained by which of the following key risk factor?
a. Operational risk
b. Business risk
c. Credit risk
d. Market risk
e. Asset/Liability Structure risk - CORRECT ANSWER✅✅✅c. Credit risk
Question 3: To protect themselves against the risk of
loss, a bank sets aside funds in the form of Risk Funds
which includes:
a. Primary cash reserves
b. Reserve for Loan and Lease Losses
c. Capital
d. All of the above
e. Only (b) and (c) are correct - CORRECT ANSWER✅✅✅e. Only (b) and (c) are correct
Question4: The profit/loss distribution for bank loans is highly skewed with limited profits but the
potential for large losses
a. True b. False - CORRECT ANSWER✅✅✅a. True
Question 5: To estimate the Daily Earnings at Risk (DEAR) approach to measuring market risk requires:
, a. The mark-to-market value of the asset, liability or portfolio
b. A measure of the price sensitivity of the asset, liability or portfolio to the risk factor of interest
(market return, market interest rate, exchange rate, etc.)
c. A z-statistic that captures the probability that a change in the key risk factor of interest will not exceed
a particular amount
d. The standard deviation or volatility of the risk factor of interest
e. All of the above - CORRECT ANSWER✅✅✅e. All of the above
Question 6: Credit Risk may arise from all but
which of the following?
a. Borrower specific or counterparty risk
b. Concentration credit risk from a lack of diversification across the bank's loan and security investments
c. Systemic credit risk or the spread of defaults across different segments of the bank's assets from the
correlation among key underlying risk factors
d. Systemic credit risk from depositors unexpectedly withdrawing funds or borrowers unexpectedly pre-
paying loans
e. Credit risk may arise from all of the above sources - CORRECT ANSWER✅✅✅d. Systemic credit
risk from depositors unexpectedly withdrawing funds or borrowers unexpectedly pre-paying loans
Question7: Thepotentialforgainsorlossesresultingfroma bank's decision to try to increase their loan
volume by offering
lower interest rates than their competitors is an example of :
a. Operational Risk
b. Interest Rate Risk
c. Counterparty Risk
d. Business Risk
e. Liquidity Risk - CORRECT ANSWER✅✅✅d. Business Risk
Question 8: In June of 2013 it was reported that at least $15m. Was stolen via online infiltration of 15
financial companies, including JP Morgan, Citigroup, E*Trade, PayPal, TIAA_CREF, and TD Ameritrade,
over a two- year period. This is an example of:
VERIFIED ANSWERS
5 C's of Credit - CORRECT ANSWER✅✅✅1. Character
2.Capacity
3.Collateral
4.Conditions
5.Captial
In the 5 C's of credit what is character - CORRECT ANSWER✅✅✅specific purpose of the loan and the
seriousness of the borrower's intent to repay
In the 5 C's of credit what is capacity - CORRECT ANSWER✅✅✅legal authority to sign a binding
contract and the sufficiency of the borrower's cash flow to service the loan
In the 5 C's of credit what is collateral - CORRECT ANSWER✅✅✅adequate assets to support the loan
in the case of default - measured by a value ratio
may include personal security of the borrower
In the 5 C's of credit what is conditions - CORRECT ANSWER✅✅✅assessing the impact of changing
economic conditions on the borrower's ability to repay
In the 5 C's of credit what is capital - CORRECT ANSWER✅✅✅assessment of the adequacy of the
borrower's capital to prevent insolvency (see collateral)
Information used to assess the five Cs of credit analysis will generally vary by _____ ______ _____
Includes things such as company type, financial ratios, profitability, market data, financial information
for corporations; Personal info for retail customers - CORRECT ANSWER✅✅✅type of loan
Question 1: The difference between
Uncertainty and Risk is that
,a. With risk, the potential outcomes can be identified and measured while with uncertainty they cannot
b. With risk, the probabilities of potential outcomes can be estimated while with uncertainty the cannot
c. Risk requires both (a) and (b)
d. There is no meaningful difference between risk and uncertainty
e. None of the above answers are accurate - CORRECT ANSWER✅✅✅C Risk requires both (a) and (b)
Question 2: According to a research report conducted by
the Federal Reserve Bank of New York, approximately 46%
of earnings volatility can be explained by which of the following key risk factor?
a. Operational risk
b. Business risk
c. Credit risk
d. Market risk
e. Asset/Liability Structure risk - CORRECT ANSWER✅✅✅c. Credit risk
Question 3: To protect themselves against the risk of
loss, a bank sets aside funds in the form of Risk Funds
which includes:
a. Primary cash reserves
b. Reserve for Loan and Lease Losses
c. Capital
d. All of the above
e. Only (b) and (c) are correct - CORRECT ANSWER✅✅✅e. Only (b) and (c) are correct
Question4: The profit/loss distribution for bank loans is highly skewed with limited profits but the
potential for large losses
a. True b. False - CORRECT ANSWER✅✅✅a. True
Question 5: To estimate the Daily Earnings at Risk (DEAR) approach to measuring market risk requires:
, a. The mark-to-market value of the asset, liability or portfolio
b. A measure of the price sensitivity of the asset, liability or portfolio to the risk factor of interest
(market return, market interest rate, exchange rate, etc.)
c. A z-statistic that captures the probability that a change in the key risk factor of interest will not exceed
a particular amount
d. The standard deviation or volatility of the risk factor of interest
e. All of the above - CORRECT ANSWER✅✅✅e. All of the above
Question 6: Credit Risk may arise from all but
which of the following?
a. Borrower specific or counterparty risk
b. Concentration credit risk from a lack of diversification across the bank's loan and security investments
c. Systemic credit risk or the spread of defaults across different segments of the bank's assets from the
correlation among key underlying risk factors
d. Systemic credit risk from depositors unexpectedly withdrawing funds or borrowers unexpectedly pre-
paying loans
e. Credit risk may arise from all of the above sources - CORRECT ANSWER✅✅✅d. Systemic credit
risk from depositors unexpectedly withdrawing funds or borrowers unexpectedly pre-paying loans
Question7: Thepotentialforgainsorlossesresultingfroma bank's decision to try to increase their loan
volume by offering
lower interest rates than their competitors is an example of :
a. Operational Risk
b. Interest Rate Risk
c. Counterparty Risk
d. Business Risk
e. Liquidity Risk - CORRECT ANSWER✅✅✅d. Business Risk
Question 8: In June of 2013 it was reported that at least $15m. Was stolen via online infiltration of 15
financial companies, including JP Morgan, Citigroup, E*Trade, PayPal, TIAA_CREF, and TD Ameritrade,
over a two- year period. This is an example of:
