The Fundamental Credit Analysis Approach Consists Of.docx 2m6t32

The fundamental credit analysis approach consists of:

8 steps 12 steps 4 steps

When analysts assess the exposure at default they obtain: Only an understanding of the type of financing Only an understanding of the intended use of the loan Both option 1 and option 2

When estimating the probability of default:

An analysis of the firm’s financial health is crucial An analysis of the peers’ financial health is crucial Neither option 1 nor option 2

When estimating the probability of recovery: The available security and collaterals are assessed and liquidation value measured Book value of equity is used as indicator of the liquidation value Neither option 1 nor option 2

Credit ratings is purely based on: Qualitative data Quantitative data All of the above

According to Standard & Poor’s rating scheme a BBB-rating corresponds to: A speculative grade An investment grade It depends – sometimes an investment grade and other times a speculative grade

Forecasting is a better and more efficient way of assessing the credit risk than using financial ratios: False Correct It depends – if resources are scarce a credit rating based on financial ratios may prove more cost-efficient

Creditors generally prefer a collateral based on intangible assets as compared to tangible assets: Correct

False None of the above

The credit spread of a B-rating is between: 3.2%-13.2% 0.8%-3.6% 0.6%-1.9%

According to Altman’s Z-score the chances of bankruptcy is high when the Z-score is: Below 1.81 Above 2.99 Between 1.81-2.99