Question 1. List the 5 C's of credit and explain the monitoring function of a bank and discuss the differences between soft & hard information and the role they play in identifying the impact of information asymmetry.
Explain relationship lending and how lending can be different between traditional banks, private equity and venture capital firms. Illustrate by graph how the competitive advantage of a bank is generated as its attempts to design portfolios that generate abnormal returns?
Question 2. What is the relationship between the probability of default and the proportion of principal and interest that may be recovered in the case of default on the loan?
Question 3. List the 3 factors that determine the expected loss under a RAROC system? How is RAROC different from ROE?
Question 4. What is meant by To Big To Fail regulatory policy under the Dodd Frank Wall Street Reform and Consumer Protection Act. Who are the major regulatory agencies and branches of government that are associated with the To Big To Fail policy. How do the regulatory agencies and branches of government involved in To Big To Fail policy resolve systemic consequences?