Chapter 6

Question 1

is defined as prudence or sagacity in the conduct of affairs

Answer 1

policy

Question 2

prudence means

Answer 2

sound judgement

Question 3

sagacity means

Answer 3

shrewdness

Question 4

are general statements used as guides for the members of an organization as they perform their jobs

Answer 4

policies

Question 5

it provides guidelines on routine and repetitious tasks

Answer 5

policies

Question 6

policies are designed or set at various levels

Answer 6

strategic policies at the top management level
tactical policies at the middle management level
operational policies for the rank and file

Question 7

it reflect the objectives and management philosopy of the organization

Answer 7

policies

Question 8

are proposed by the credit department, then later approved by the BOD who may delegate this function to a credit committee or the company president

Answer 8

credit policies

Question 9

They are revised from time to time and the inputs of branches or district officers are sometimes taken into consideration.

Answer 9

credit policies

Question 10

the decision to produce a written policy manual would depend on

Answer 10

Financial resources of the company
philosophy of the management
organizational size and structure
complexity of credit transactions
approval limits

Question 11

Some of the areas where general policies have to be designed are

Answer 11

approval authority
credit limits
loan to market value ratios
past due limits
territorial limits
single proprietor vs. corporation
other side agreements imposed by lender
separations of credit from marketing operations

Question 12

the approval authority to approve could either be

Answer 12

geographical or based on rank or title

Question 13

in geographical how much is the amount of loan then who will approve it

Answer 13

Over 500k head office
200k to 499999 regional office
50k to 199999 branch or district office

Question 14

if based on rank or title how much is the amount of loan and who will approve

Answer 14

Over 500k president
200k to 499,999 vice president
50k to 199,999 loan officer

Question 15

Is the maximum amount of credit that could be granted to one borrower

Answer 15

credit limits

Question 16

example of credit limits

Answer 16

single borrower rule in a bank

Question 17

Credit limit should be

Answer 17

sound and practical

Question 18

in secured loans, this represents the maximum loan that could be granted to a borrower based on the propertys market value

Answer 18

loan to market valie ratios

Question 19

this limit is imposed as a performance measurement tool of branches or of the credit and collection department

Answer 19

past due limits

Question 20

it coulsd be the basis for the promotability of employees

Answer 20

past due limits

Question 21

it is also used in the collection incentive progran

Answer 21

past due limits

Question 22

the past due limit of banks

Answer 22

25%

Question 23

is privilege whereby banks who are low on funds may borrow from the bangko sentral using their own loans as collateral

Answer 23

re-discounting

Question 24

Areas where credit could be granted are clearly identified based on geographical limits

Answer 24

territorial limits

Question 25

Some of the factors used in delineating territorial limits are

Answer 25

Peace and order situation particularly in provinces where insurgents are active availability of regular public transport facilities prevalence of crime travel time road conditions

Question 26

The main issue here is liability

Answer 26

single proprietorship vs corporation

Question 27

Is single proprietorship has,,, while corporation has

Answer 27

unlimited liability limited liability

Question 28

This means that if an entrepreneur uses a single proprietorship as the type of legal organization for his business and he incurs a liability and excess of his business resources he is still liable to the extent of all his personal assets present and future

Answer 28

unlimited liability

Question 29

the other common conditions imposed by lenders are

Answer 29

compensating balance annual clean-ups submission of regular periodic financial statements exclusive marketing agreement exclusive warehousing and transport agreement assurance of quick response repair services

Question 30

some banks require that their borrowers should maintain a balance in their bank equivalent to 10% of the loan

Answer 30

compensating balance

Question 31

in some types pf loans, banks require their borrowers to pay all unpaid loans at least once a year this tests the borrowers financial capacity

Answer 31

annual clean-ups

Question 32

merchandise credit is granted provided that the buyer will sell and carry in its inventory, on an exclusive basis, only the products of the creditor-supplier

Answer 32

exclusive marketing agreement

Question 33

This is required by lenders who have interest in warehouses and transportation facilities

Answer 33

Exclusive warehousing and transport agreement

Question 34

Landers for car financing would like to make sure that when there are car breakdown the dealer has complete service facilities

Answer 34

Assurance of quick response repair services

Question 35

It is this department sole responsibility is to make sure that credit resources are used properly no credit sales should be allowed to unworthy customers

Answer 35

Credit department

Question 36

Some of the terms that may be used in loan payment terms

Answer 36

Pay on demand Payment required immediately after the occurence Payment required when merchandise is sold Payment with specific due dates

Question 37

Arrangements that fall in paymemt required after mechandise is sold

Answer 37

Consignment only trust receipt

Question 38

the receiver of the goods held in trust

Answer 38

entrustee

Question 39

owner of the goods

Answer 39

entrustor

Question 40

Kinds of payment with certain due date

Answer 40

1. due dates in calendar days 2. fixed one year with renewal 3. payments after availments 4. interest only, and ballon payment at end of term 5. amortized payments of equal amounts 6. graduated payment schemes 7. decreasing payment schemes 8. acceleration clause

Question 41

this applies to a line of credit and a revolving credit agreement

Answer 41

payments after availments

Question 42

the principal payment is a large lump-sum payment and is called

Answer 42

balloon

Question 43

a large lump sum payment at any time, either at the end of the credit term, or during the term

Answer 43

balloon payment

Question 44

this payment scheme provides for equal periodic payments of equal amounts

Answer 44

amortized

Question 45

is really an amortized type of credit

Answer 45

installment payment scheme

Question 46

monthly payments are popularly called

Answer 46

installments

Question 47

payments on medium term and long term bank loans are called

Answer 47

amortizations

Question 48

this payment set up is popular in home mortgages, particularly to applicants who just graduated from college and are just starting out

Answer 48

graduated payment scheme

Question 49

this is a very rare payment plan and is the exact opposite of the graduated payment scheme

Answer 49

decreasing payment scheme

Question 50

this scheme is appropriate for individuals who are at the peak of their career or who are currently experiencing financial success

Answer 50

decreasing payment scheme

Question 51

several factors to be taken into account in determining the term to be used

Answer 51

nature of the product the sellers mark up on the product the loan value vs market value the terms used by competitors

Question 52

this particularly applies in cash loans secured by real estate property

Answer 52

the loan value vs market value

Question 53

this is a provision in an installment contract which accelerates the due date of the loan or credit in case of non payment of some periodic payments

Answer 53

use of acceleration clause

Question 54

kinds of interest

Answer 54

simple and compound

Question 55

interest used in various kinds of credit have different modes and are calculated in many different ways

Answer 55

simple interest add on interest rate compound interest-amortized fixed rate and variable rate

Question 56

this is popular in appliance or installment credits and consumer loans

Answer 56

add-on interest rate

Question 57

is the rate charged by banks to its prime, or its best, clients

Answer 57

prime rate

Question 58

6C's od credit

Answer 58

character capacity capital collateral conditions cash flow

Question 59

the first and the most important C

Answer 59

character

Question 60

are the favtors to be considered in approving or disapproving a ctedit application

Answer 60

credit criteria

Question 61

refers to a persons attitude towards credit, which excludes many other things

Answer 61

credit character

Question 62

refers to his mental disposition and his personal values in relation to credit commitments

Answer 62

credit character

Question 63

if the applicant does not have a credit history, how will the evaluator judge his character

Answer 63

applicants attachment to community, job or business, to the thing purchased

Question 64

this refers to the applicants sense of belonging in a community

Answer 64

attachment to the community

Question 65

this refers to a borrowers resources

Answer 65

capital

Question 66

tjis refers to personal and real properties that are used to secure a credit obligation

Answer 66

collateral