CREDIT RISK MANAGEMENT APRIL 2023 PAST PAPER

TUESDAY: 25 April 2023. Afternoon Paper.                                                                    Time Allowed: 3 hours.

Answer any FIVE questions.  ALL questions carry equal marks.  Do NOT write anything on this paper.

QUESTION ONE

1.          Explain the following types of risk contexts:

Risk management.    (2 marks)

Internal.  (2 marks)

External.   (2 marks)

2.          Summarise THREE principles of selecting credit risk mitigants. (6 marks)

3.          Discuss FOUR benefits of credit risk analysis to financial institutions.   (8 marks)

(Total: 20 marks)

 

QUESTION TWO

1.          List FOUR responsibilities of the credit risk function.   (4 marks)

2.         Describe THREE business factors that could contribute to loss given default (LGD).  (6 marks)

3.         Examine FIVE types of competition risk responses.              (10 marks)

(Total: 20 marks)

 

QUESTION THREE

1.          Identify THREE advantages of a risk identification matrix.   (6 marks)

2.          Propose THREE factors that a credit analyst could consider in marketplace component risk analysis.   (6 marks)

3.           Evaluate FOUR types of working capital risk mitigants that could emanate from working capital management. (8 marks)

(Total: 20 marks)

 

QUESTION FOUR

1.           Distinguish between a “term loan’ and an “overdraft’.    (4 marks)

2.           Explain FOUR benefits of using credit scoring models.    (8 marks)

3.           Evaluate FOUR types of foreign exchange risks cover.   (8 marks)

(Total: 20 marks)

 

QUESTION FIVE

1.          Define the following terms as used in external risk analysis:

Regulatory framework.   (2 marks)

Environmental issues.  (2 marks)

2.           Analyse FOUR factors that could influence a firm’s working capital requirement.   (8 marks)

3.           Assess FOUR limitations of using credit to finance a business.   (8 marks)

(Total: 20 marks)

 

QUESTION SIX

1.           State FOUR factors that could influence an entity’s credit risk appetite.   (4 marks)

2.          Describe THREE goals of credit risk measurement.   (6 marks)

3.          Explain 5Cs as used in credit assessment.   (10 marks)

(Total: 20 marks)

QUESTION SEVEN

1.           Differentiate between “risk” and “uncertainty”.   (4 marks)

2.          Summarise FOUR types of financial risks that are worth noting by credit managers.     (8 marks)

3.          Assess FOUR challenges a credit analyst could face during credit risk analysis.    (8 marks)

(Total: 20 marks)

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