Question

11.

Finance companies have recently experienced an increase in subprime lending characterized by

Select one:

a. higher costs of loan servicing and collection.

b. borrowers with low or non-existent credit record.

c. higher fee, higher interest rate loans.

d. All of the above

12.

An individual private pension plan that allows individuals to set aside a certain sum of employment income, subject to a maximum, into an account without having to pay tax on it and the interest earned on the account until the funds are withdrawn upon retirement is a called a

Select one:

a. Roth IRA.

b. IRA.

c. SIMPLE.

d. SEP-IRA.

13.

Bank risk management refers to

Select one:

a. managing the banks liabilities and capital.

b. managing the bank assets.

c. managing the assets, liabilities and capital of a bank.

d. managing the credit risk of lending to diverse borrowers.

14.

Financial conglomerates are formed by owning and operating

Select one:

a. multi-bank holding companies.

b. financial holding companies.

c. financial intermediaries and financial institutions.

d. None of the above

15.

Coinsurance serves as a defense against moral hazard by

Select one:

a. requiring the insured to double insure against a possible loss.

b. requiring the insured to avoid the risk of loss.

c. requiring the insured to pay a proportion of the loss.

d. None of the above

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Answer 1

11. d. All of the above

Sub-prime lending is done to borrowers with low or non-existant credit scores and accordingly a very high rate of interest is charged from the borrower, and the collection costs also increase due to the nature of borrower.

12. b. IRA.

Roth IRA is taxed in the year of contribution and the SIMPLE and SEP-IRA are focused on small businesses and matching contribution instead of employment income. IRA is the required plan where tax is paid on withdrawl after retirement.

13. d. managing the credit risk of lending to diverse borrowers.

While bank risk covers various aspects, main aspect is to ensure the management of the credit risk of the various advances given by the bank and to ensure proper credit culture and practices to ensure timely recovery of the assets and to prevent bad debts. (Non-Performing Assets)

14. c. financial intermediaries and financial institutions.

Financial conglomerates are formed when an organisation controls various facets of the finance world including the financial intermediaries (Broking, merchant banking etc.) and financial institutions (banks, insurance, asset management, NBFC etc.)

15. c. requiring the insured to pay a proportion of the loss.

Coinsurance required the insured to pay a portion of the loss claimed and hence prevent the reporting of false and frivilous claims by the insured as the insuerd would also have to bear a portion of the loss.