FIN 461 LATEST 2026 EXAMS QUESTIONS AND ANSWERS
RATED A+
✔✔Besides reducing credit risks, an FI has an incentive to sell loans it originates for all
of the following reasons EXCEPT to
A. geographically diversify.
B. decrease core deposits.
C. lower reserve requirements.
D. lower capital requirements.
E. generate reinvestment income. - ✔✔B
✔✔Which of the following is NOT a contractual mechanism used by FIs to control credit
risks?
A. Diversifying across different types of risky borrowers.
B. Requiring higher interest rate spreads for higher risk borrowers.
C. Requiring more collateral for the bank over the assets of more risky borrowers.
D. Making lending decisions only in centralized locations.
E. Placing more restrictive covenants on the actions of more risky borrowers. - ✔✔D
✔✔A loan made to finance a merger and acquisition that usually results in a high
leverage ratio for the borrower is a
A. loan sold without recourse.
B. highly leveraged transaction loan.
C. loan sold with recourse.
D. loan assignment transaction.
E. loan participation transaction. - ✔✔B
✔✔Which of the following observations is NOT correct?
A. Most loans are sold with recourse.
B. Loan sales are a primitive substitute for securitization.
C. Selling of a loan creates a secondary market for loans.
D. Ownership of the loan is always transferred to the loan purchaser.
E. Loan sales do not involve the creation of new types of securities - ✔✔A
✔✔Which of the following is NOT a key characteristic of loans sold in the short-term
loan sale market?
A. Issued as a secured loan.
B. Loans to investment grade borrowers or better.
C. Issued with a fixed rate.
D. Sold in units of $1 million and up.
E. Issued for 90 days or less. - ✔✔C
✔✔What are the two basic types of loan sale contracts or mechanisms by which loans
can be transferred between seller and buyer?
A. Participations and assignments.
, B. Participations and originations.
C. Syndications and originations.
D. Transfers and assignments.
E. Exercise and transfers. - ✔✔A
✔✔Currently, this basic type of loan sale contracts comprises the bulk of loan sales
trading.
A. Participations.
B. Originations.
C. Syndications.
D. Assignments.
E. Transfers. - ✔✔D
✔✔Loan participations
A. are riskier than loan assignments.
B. are less risky than loan assignments.
C. are always sold without recourse.
D. are always sold with partial recourse.
E. are made in smaller denominations than are loan assignments. - ✔✔A
✔✔In a loan participation
A. the holder (buyer) is not a party to the underlying credit agreement, so the initial
contract between the loan seller and the borrower remains in place after the sale.
B. the holder (buyer) is a party to the underlying credit agreement, so the initial contract
between the loan seller and the borrower remains in place after the sale.
C. the holder (buyer) can vote only on material changes to the loan contract such as
changes in interest rate or collateral backing the loan.
D. the holder (buyer) is not a party to the underlying credit agreement, so the initial
contract between the loan seller and the borrower remains in place after the sale and
the holder (buyer) can vote only on material changes to the loan contract such as
changes in interest rate or collateral backing the loan.
E. the holder (buyer) is a party to the underlying credit agreement, so the initial contract
between the loan se - ✔✔D
✔✔Loan participations are typically sold to correspondent banks because
A. they are insiders and can be trusted.
B. they offer the best prices.
C. the ongoing relationship offers the greatest monitoring opportunities.
D. it is a regulatory requirement.
E. correspondent banks are captive customers. - ✔✔C
✔✔A buyer of a loan participation is exposed to
A. risk exposure to the original borrower defaulting.
B. risk exposure to the failure of the selling bank.
C. moral hazard problems because the borrower is no longer monitored by the seller.
RATED A+
✔✔Besides reducing credit risks, an FI has an incentive to sell loans it originates for all
of the following reasons EXCEPT to
A. geographically diversify.
B. decrease core deposits.
C. lower reserve requirements.
D. lower capital requirements.
E. generate reinvestment income. - ✔✔B
✔✔Which of the following is NOT a contractual mechanism used by FIs to control credit
risks?
A. Diversifying across different types of risky borrowers.
B. Requiring higher interest rate spreads for higher risk borrowers.
C. Requiring more collateral for the bank over the assets of more risky borrowers.
D. Making lending decisions only in centralized locations.
E. Placing more restrictive covenants on the actions of more risky borrowers. - ✔✔D
✔✔A loan made to finance a merger and acquisition that usually results in a high
leverage ratio for the borrower is a
A. loan sold without recourse.
B. highly leveraged transaction loan.
C. loan sold with recourse.
D. loan assignment transaction.
E. loan participation transaction. - ✔✔B
✔✔Which of the following observations is NOT correct?
A. Most loans are sold with recourse.
B. Loan sales are a primitive substitute for securitization.
C. Selling of a loan creates a secondary market for loans.
D. Ownership of the loan is always transferred to the loan purchaser.
E. Loan sales do not involve the creation of new types of securities - ✔✔A
✔✔Which of the following is NOT a key characteristic of loans sold in the short-term
loan sale market?
A. Issued as a secured loan.
B. Loans to investment grade borrowers or better.
C. Issued with a fixed rate.
D. Sold in units of $1 million and up.
E. Issued for 90 days or less. - ✔✔C
✔✔What are the two basic types of loan sale contracts or mechanisms by which loans
can be transferred between seller and buyer?
A. Participations and assignments.
, B. Participations and originations.
C. Syndications and originations.
D. Transfers and assignments.
E. Exercise and transfers. - ✔✔A
✔✔Currently, this basic type of loan sale contracts comprises the bulk of loan sales
trading.
A. Participations.
B. Originations.
C. Syndications.
D. Assignments.
E. Transfers. - ✔✔D
✔✔Loan participations
A. are riskier than loan assignments.
B. are less risky than loan assignments.
C. are always sold without recourse.
D. are always sold with partial recourse.
E. are made in smaller denominations than are loan assignments. - ✔✔A
✔✔In a loan participation
A. the holder (buyer) is not a party to the underlying credit agreement, so the initial
contract between the loan seller and the borrower remains in place after the sale.
B. the holder (buyer) is a party to the underlying credit agreement, so the initial contract
between the loan seller and the borrower remains in place after the sale.
C. the holder (buyer) can vote only on material changes to the loan contract such as
changes in interest rate or collateral backing the loan.
D. the holder (buyer) is not a party to the underlying credit agreement, so the initial
contract between the loan seller and the borrower remains in place after the sale and
the holder (buyer) can vote only on material changes to the loan contract such as
changes in interest rate or collateral backing the loan.
E. the holder (buyer) is a party to the underlying credit agreement, so the initial contract
between the loan se - ✔✔D
✔✔Loan participations are typically sold to correspondent banks because
A. they are insiders and can be trusted.
B. they offer the best prices.
C. the ongoing relationship offers the greatest monitoring opportunities.
D. it is a regulatory requirement.
E. correspondent banks are captive customers. - ✔✔C
✔✔A buyer of a loan participation is exposed to
A. risk exposure to the original borrower defaulting.
B. risk exposure to the failure of the selling bank.
C. moral hazard problems because the borrower is no longer monitored by the seller.
