CORPORATE CREDIT ANALYSIS AUGUST 2022 PAST PAPER

TUESDAY: 2 August 2022. Afternoon paper. Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Do NOT write anything on this paper.

QUESTION ONE

1. Explain the following terms:

Negative pledge. (2 marks)

Positive covenant. (2 marks)

2. Analyse four components of a loan agreement. (8 marks)

3. Enumerate eight practices adopted by borrowers who have pledged their stock as security for a loan. (8 marks)

(Total: 20 marks)

QUESTION TWO

1. Differentiate between “debt rescheduling” and “debt restructuring”. (4 marks)

Explain three benefits of loan rescheduling to the lender. (6 marks)

2. Discuss five lifecycle stages of a business that a credit analyst needs to understand. (10 marks)

(Total: 20 marks)

QUESTION THREE

1. List four things that an investor should consider when taking convertible debt. (4 marks)

2. Enumerate six importance of undertaking business environment scanning of a corporate when applying for a loan. (6 marks)

3. Describe risks associated with the following macroeconomic factors:

Inflation and interest rates. (2 marks)

Foreign exchange risks. (2 marks)

4. Discuss three features of sole proprietorship. (6 marks)

(Total: 20 marks)

QUESTION FOUR

1. With reference to management factor analysis, explain the meaning of management quality. (2 marks)

2. Explain the term “impaired credit”. (2 marks)

List four causes of impaired credit for an individual. (4 marks)

3. Summarise six factors that affect industry’s margin trends. (6 marks)

4. Enumerate six limitations of using earnings before interest, tax, depreciation and amortisation (EBITDA) in cash flow risk analysis. (6 marks)

(Total: 20 marks)

QUESTION FIVE

1. Describe four qualitative factors that affect loan recovery values. (4 marks)

2. With reference to debt financing instruments:

Explain the term “private placement”. (2 marks)

Outline three features of private placement. (3 marks)

3. Enumerate three disadvantages of a trust. (3 marks)

4. Discuss four challenges to Successful Credit Risk Management. (8 marks)

(Total: 20 marks)

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