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- Which is an incorrect scenario on covenants?a. The issuing firms pursued revenue generating projects to ensure payment of the interest and theprincipal on a timely basis.b. The issuing firm disposes a mortgage on a bond to settle other creditors’ claims to prevent insolvency.c. The issuing firm submitted periodic reports to the trustee bank to fulfill the loan agreement.d. The issuing firm disposed the collateral to settle the agreement with the bondholders.e. B & Df. All of the aboveg. None of the aboveWhich of the following is an example of faithful representation? A Showing lease payments as a rental expense B Being prudent by recording the entire amount of a convertible loan as a liability C Creating a provision for staff relocation costs as part of a planned restructuring D Recording a sale and repurchase transaction with a bank as a loan rather than a sale1(A).Why did Lenders/Banks start to securitize mortgages (creating Collateralized Mortgages or Debt Obligations (CMOs/CDOs)? (B).What is the conflict of interest that credit agencies faced leading up to the financial crisis? (hint: The Big Short)?
- eceivables arise due to a deferred sale, and companies are often unable to collect all their debts, which means that part of those debts may become non-existent or there is doubt about the possibility of collection. 1- What is the difference between bad debts and doubtful debts? 2- Draft an example (supported by numbers) to explain the method of doubtful debts in dealing with bad debts, provided that the explanation includes accounting restrictions and the impact on the financial statements? 3- Explain why the use of the direct method (bad debt method) conflicts with generally accepted accounting principles? 4- One of the methods for estimating doubtful debts is the deferred sales method, the receivables balance method, and the receivables aging method. Required: Formulate an example (enhanced by numbers) to explain the method of aging receivables in estimating doubtful debts, taking into account the following: (1) the number of clients should be 10 clients, (2) the percentages…Which of the following does not relate to credit risks? a. Credit risk is the possibility of losing a lender takes on due to the possibility of a borrower not paying back a loan b. It refers to the risk that a lender may not receive the owed principal and interest c. Credit risk also describes the risk that an insurance company will be able to pay a claim. d. Credit risk is the possibility of a loss resulting from a borrower's failure to repay a loan or meet contractual obligations e. Credit risk describes the risk that a bond issuer may fail to make payment when requestedCommercial loan agreements should contain which of the following: a. representations b. fees and charges c. means of repayment d. all of the above In order for the seller of securitized securities to remove the assets (i.e. mortgages) from the balance sheet, the sale must a. have a service agreement b. be overcollateralized c. be without recourse d. be made at a discount (original issue discount) Banks may deny creditworthy borrowers loan requests if a. they are non-corporate entities b. they are on late on paying taxes c. the loan is too risky d. they are individuals Chattel mortgages refer to a. a security agreement using corporate assets b. a security agreement using commercial equipment c. a security agreement using intangible property d. a security agreement using tangible personal property
- refers to the possibility that the debtors supported by bank credit are unable or unwilling to repay the debts on time as stipulated in the contract for various reasons, causing losses to the bank. (A) Credit risk (B) Market risk (C) Operational risk (D) Liquidity riskIn the context of handling debt - like items in M&A, what is the most buyer-friendly approach for items representing a hard claim that must be paid post-close? a. Purchase price adjustments b. Escrow accounts c. Insurance policies d. Working capital adjustments e. Debt refinancingWhich of the following has the highest relative likelihood of being defaulted in paying the outstanding loan? Company AB. Company EF. Company CD. Company GH.
- Loan covenants are used for which of the following reasons?a. To protect the lender from the borrower’s substantially weakening of the latter’s financial position.b. To protect the borrower from the lender’s calling the loan early.c. To protect the auditors from false information by the borrower.d. To protect shareholders from management taking on too much debt.Which one of the following is NOT the standard covenants in loan contracts? a. Audit fee b. Actions in case of default c. Government charges d. Fees and interest ratesWhich one of the following statements regarding the loans market is false? a) The principal-agent problem leads to credit rationing in the loans market b) One solution for the principal-agent problem in loans is for the borrower to provide equity or collateral c) Credit rationing increases inequality d) The principal-agent problem in loans can not be resolved by writing a binding contract for the borrower to exert full effort e) The principal-agent problem exists in loans due to a positive possibility of the agent not being repai