Credit risk – NBC Institute

CSME – Nov 2015 – L2 – Q1b – Risk Management and Corporate Strategy

Discusses various methods for managing and controlling risks in an organization, illustrating different risk management techniques.

Question

There are different methods of managing and controlling risks. Explain and illustrate any THREE of the following approaches to risk management:
i. Risk Diversification
ii. Risk Transfer
iii. Risk Sharing
iv. Risk Hedging (15 Marks)

Answer

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Tags: Credit risk, Risk Diversification, Risk Hedging, Risk Sharing, Risk Transfer
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: NOV 2015

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

Question

The finance director of Basket Company is preparing a proposal to present to the board of directors. He believes that the company is much too cautious in its policy of giving credit to customers. At the moment all customers are given 30 days’ credit. He believes that by increasing its exposure to credit risk, and increasing credit terms to 60 days, the company will achieve an increase in annual sales of up to 20%. He also thinks that some improvements in debt collection procedures will reduce the level of bad debts, although some bad debts cannot be avoided. He thinks that the value of sales where there is a default will fall each year from 2% of sales to 1.8% of sales. He proposes that in order to increase annual sales and profits, the company should be willing to increase its risk appetite and accept the risk of higher bad debts.

Required:

Using this example of managing credit risk, explain and illustrate the meaning of:
i. Exposure to risk
ii. Risk of losses
iii. Residual risk
iv. Risk appetite

Answer

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Tags: Credit Period, Credit risk, Exposure to Risk, Residual Risk, Risk Appetite, Risk of Losses
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: NOV 2015

SCS – Nov 2021 – L3 – Q6 – Identifying and Assessing Risk

Identify and assess four key business risks that COM faces and their impact on the company’s objectives.

Question

The board has recognized that the company faces several business risks which, individually or together, could affect COM and its objectives and/or prospects. The board needs a briefing paper from the CEO on the current significant business risks that the company may be exposed to.

Required:
You are an Advisor to the CEO and he has asked you to prepare a briefing paper to be added to the board pack identifying and assessing the impact of FOUR (4) key business risks that COM must address in order to achieve its strategic objectives. Clearly identify the specific conditions giving rise to each key risk.

Answer

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Tags: Business risk, Credit risk, Liquidity risk, Market Risk, Technological Risk
Level: Level 3

Topic: Identifying and assessing risk
Series: NOV 2021

CSME – Mar/Jul 2020 – L2 – Q5 – Oasis Bakeries Risk and Stakeholder Impact Analysis

Analyze the risks inherent in Oasis Bakeries' growth strategy and the impacts on stakeholders.

Question

Oasis Bakeries is a producer of all kinds of bread, servicing only the Lagos market. In response to the anticipated increase in the demand for bread, the company decided to increase its installed production capacity from 1,000 loaves to 5,000 loaves per day, having secured regulatory approval from the federal authority.

However, the market for bread in Lagos is largely dominated by bigger producers, and there is some stability in the price of bread across all brands in the market. Thus, the risk of a price war is low. However, owing to the short shelf life of loaves of bread, most are sold to retailers on credit, and due to a combination of reasons, the credit default rate is increasing. The company by experience has also discovered that ovens, mixers, and other equipment for the production of bread rarely break down within the first 5 years of usage. However, procurement of raw materials such as flour and butter has become more challenging due to the activities of bigger bakeries and the recent increase in import duty on all processed food.
Required:
a. Advise Oasis Bakeries on the level of exposure to any FIVE categories of risk inherent in its growth strategy. (10 Marks)

b. Analyze the impacts of risk on any FIVE of the stakeholder groups of Oasis Bakeries. (10 Marks)
(Total: 20 Marks)

Answer

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Tags: Credit risk, Market Risk, Risk Management, Stakeholder Impact
Level: Level 2

Topic: Risk Management, Stakeholder Management
Series: MAR/JULY 2020

CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511

Advise on the financial reporting issues arising from the impact of credit risk on debt instruments.

Question

b) Duakwanta is a listed company which manufactures personal computers (PCs). It is preparing its financial statements for the year ended 31 May 2019 and would like to seek advice on the following accounting issue:

During the year, Duakwanta issued a debt finance to the financial markets to fund its expansion plans. This was a very significant debt issue for Duakwanta. After the issue, the market price of each block of debt on the market fell by approximately 10%. The financial press has stated that the reason for the fall is due to an increase in the company’s credit risk, as the market players are worried by the size of the interest payments on Duakwanta’s operating cash flows.

Required:
Advise the directors as to the financial reporting issues arising from the above scenario and explain the appropriate treatment in Duakwanta’s financial statements. (4 marks)

Answer

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Tags: Credit risk, Debt Instruments, IFRS 9
Level: Level 3

Topic: Financial instruments: Presentation and disclosure 511
Series: NOV 2017

CR – Nov 2016 – L3 – Q2c – Financial instruments: Recognition and measurement

Discuss the accounting treatment for the fair value movement of financial liabilities at fair value through profit or loss.

Question

Abiba Limited is a company operating in Northern Ghana and provides loans to customers and funds the loans by selling bonds in the market. The financial liability is designated as fair value through profit or loss. The bonds have a fair value increase of GH¢100 million in the year to 31 December 2015, of which GH¢5 million relates to the reduction in Abiba’s creditworthiness. The directors of Abiba Ltd have contacted your consultancy firm for advice on how to account for this movement.

Required:
Discuss, with appropriate computations where necessary, the accounting treatment of the above transactions in the financial statements of Abiba Ltd for the year ended 31 December 2015.

Answer

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Tags: Bonds, Credit risk, Fair Value, Financial instruments
Level: Level 3

Topic: Financial instruments: Recognition and measurement Corporate reporting

FM – Nov 2020 – L2 – Q3c – Foreign exchange risk and currency risk management

Explain the difference between credit risk and liquidity risk in financial management.

Question

The recent financial sector clean-up in Ghana has created tough economic times for borrowers and investors and has tightened Financial Institutions’ appetite for granting credit and depositors’ appetite for depositing or placing funds with Financial Institutions, thereby creating a tight liquidity situation in the market.

Required:

As an expert in Financial Management, explain the difference between credit risk and liquidity risk. (3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Credit risk, Liquidity risk, Risk Management
Level: Level 2

Topic: Foreign exchange risk and currency risk management
Series: NOV 2020

CSME – Nov 2015 – L2 – Q1b – Risk Management and Corporate Strategy

Discusses various methods for managing and controlling risks in an organization, illustrating different risk management techniques.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Credit risk, Risk Diversification, Risk Hedging, Risk Sharing, Risk Transfer
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: NOV 2015

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

Question

Required:

Using this example of managing credit risk, explain and illustrate the meaning of:
i. Exposure to risk
ii. Risk of losses
iii. Residual risk
iv. Risk appetite

Answer

Find Related Questions by Tags, levels, etc.

Tags: Credit Period, Credit risk, Exposure to Risk, Residual Risk, Risk Appetite, Risk of Losses
Level: Level 2

Topic: Risk Management and Corporate Strategy
Series: NOV 2015

SCS – Nov 2021 – L3 – Q6 – Identifying and Assessing Risk

Identify and assess four key business risks that COM faces and their impact on the company’s objectives.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Business risk, Credit risk, Liquidity risk, Market Risk, Technological Risk
Level: Level 3

Topic: Identifying and assessing risk
Series: NOV 2021

CSME – Mar/Jul 2020 – L2 – Q5 – Oasis Bakeries Risk and Stakeholder Impact Analysis

Analyze the risks inherent in Oasis Bakeries' growth strategy and the impacts on stakeholders.

Question

b. Analyze the impacts of risk on any FIVE of the stakeholder groups of Oasis Bakeries. (10 Marks)
(Total: 20 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Credit risk, Market Risk, Risk Management, Stakeholder Impact
Level: Level 2

Topic: Risk Management, Stakeholder Management
Series: MAR/JULY 2020

CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511

Advise on the financial reporting issues arising from the impact of credit risk on debt instruments.

Question

Required:
Advise the directors as to the financial reporting issues arising from the above scenario and explain the appropriate treatment in Duakwanta’s financial statements. (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Credit risk, Debt Instruments, IFRS 9
Level: Level 3

Topic: Financial instruments: Presentation and disclosure 511
Series: NOV 2017

CR – Nov 2016 – L3 – Q2c – Financial instruments: Recognition and measurement

Discuss the accounting treatment for the fair value movement of financial liabilities at fair value through profit or loss.

Question

Required:
Discuss, with appropriate computations where necessary, the accounting treatment of the above transactions in the financial statements of Abiba Ltd for the year ended 31 December 2015.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bonds, Credit risk, Fair Value, Financial instruments
Level: Level 3

Topic: Financial instruments: Recognition and measurement Corporate reporting

FM – Nov 2020 – L2 – Q3c – Foreign exchange risk and currency risk management

Explain the difference between credit risk and liquidity risk in financial management.

Question

Required:

As an expert in Financial Management, explain the difference between credit risk and liquidity risk. (3 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Credit risk, Liquidity risk, Risk Management
Level: Level 2

Topic: Foreign exchange risk and currency risk management
Series: NOV 2020

Question Tag: Credit risk

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CSME – Nov 2015 – L2 – Q1b – Risk Management and Corporate Strategy

Discusses various methods for managing and controlling risks in an organization, illustrating different risk management techniques.

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

SCS – Nov 2021 – L3 – Q6 – Identifying and Assessing Risk

Identify and assess four key business risks that COM faces and their impact on the company’s objectives.

CSME – Mar/Jul 2020 – L2 – Q5 – Oasis Bakeries Risk and Stakeholder Impact Analysis

Analyze the risks inherent in Oasis Bakeries' growth strategy and the impacts on stakeholders.

CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511

Advise on the financial reporting issues arising from the impact of credit risk on debt instruments.

CR – Nov 2016 – L3 – Q2c – Financial instruments: Recognition and measurement

Discuss the accounting treatment for the fair value movement of financial liabilities at fair value through profit or loss.

FM – Nov 2020 – L2 – Q3c – Foreign exchange risk and currency risk management

Explain the difference between credit risk and liquidity risk in financial management.

CSME – Nov 2015 – L2 – Q1b – Risk Management and Corporate Strategy

Discusses various methods for managing and controlling risks in an organization, illustrating different risk management techniques.

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

SCS – Nov 2021 – L3 – Q6 – Identifying and Assessing Risk

Identify and assess four key business risks that COM faces and their impact on the company’s objectives.

CSME – Mar/Jul 2020 – L2 – Q5 – Oasis Bakeries Risk and Stakeholder Impact Analysis

Analyze the risks inherent in Oasis Bakeries' growth strategy and the impacts on stakeholders.

CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511

Advise on the financial reporting issues arising from the impact of credit risk on debt instruments.

CR – Nov 2016 – L3 – Q2c – Financial instruments: Recognition and measurement

Discuss the accounting treatment for the fair value movement of financial liabilities at fair value through profit or loss.

FM – Nov 2020 – L2 – Q3c – Foreign exchange risk and currency risk management

Explain the difference between credit risk and liquidity risk in financial management.

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Question Tag: Credit risk

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CSME – Nov 2015 – L2 – Q1b – Risk Management and Corporate Strategy

Discusses various methods for managing and controlling risks in an organization, illustrating different risk management techniques.

You're reporting an error for "CSME – Nov 2015 – L2 – Q1b – Risk Management and Corporate Strategy"

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

You're reporting an error for "CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy"

SCS – Nov 2021 – L3 – Q6 – Identifying and Assessing Risk

Identify and assess four key business risks that COM faces and their impact on the company’s objectives.

You're reporting an error for "SCS – Nov 2021 – L3 – Q6 – Identifying and Assessing Risk"

CSME – Mar/Jul 2020 – L2 – Q5 – Oasis Bakeries Risk and Stakeholder Impact Analysis

Analyze the risks inherent in Oasis Bakeries' growth strategy and the impacts on stakeholders.

You're reporting an error for "CSME – Mar/Jul 2020 – L2 – Q5 – Oasis Bakeries Risk and Stakeholder Impact Analysis"

CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511

Advise on the financial reporting issues arising from the impact of credit risk on debt instruments.

You're reporting an error for "CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511"

CR – Nov 2016 – L3 – Q2c – Financial instruments: Recognition and measurement

Discuss the accounting treatment for the fair value movement of financial liabilities at fair value through profit or loss.

You're reporting an error for "CR – Nov 2016 – L3 – Q2c – Financial instruments: Recognition and measurement"

FM – Nov 2020 – L2 – Q3c – Foreign exchange risk and currency risk management

Explain the difference between credit risk and liquidity risk in financial management.

You're reporting an error for "FM – Nov 2020 – L2 – Q3c – Foreign exchange risk and currency risk management"

CSME – Nov 2015 – L2 – Q1b – Risk Management and Corporate Strategy

Discusses various methods for managing and controlling risks in an organization, illustrating different risk management techniques.

You're reporting an error for "CSME – Nov 2015 – L2 – Q1b – Risk Management and Corporate Strategy"

CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy

Explains credit risk management concepts, including exposure, losses, residual risk, and appetite.

You're reporting an error for "CSME – Nov 2015 – L2 – Q1a – Risk Management and Corporate Strategy"

SCS – Nov 2021 – L3 – Q6 – Identifying and Assessing Risk

Identify and assess four key business risks that COM faces and their impact on the company’s objectives.

You're reporting an error for "SCS – Nov 2021 – L3 – Q6 – Identifying and Assessing Risk"

CSME – Mar/Jul 2020 – L2 – Q5 – Oasis Bakeries Risk and Stakeholder Impact Analysis

Analyze the risks inherent in Oasis Bakeries' growth strategy and the impacts on stakeholders.

You're reporting an error for "CSME – Mar/Jul 2020 – L2 – Q5 – Oasis Bakeries Risk and Stakeholder Impact Analysis"

CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511

Advise on the financial reporting issues arising from the impact of credit risk on debt instruments.

You're reporting an error for "CR – Nov 2019 – L3 – Q3b – Financial instruments: Presentation and disclosure 511"

CR – Nov 2016 – L3 – Q2c – Financial instruments: Recognition and measurement

Discuss the accounting treatment for the fair value movement of financial liabilities at fair value through profit or loss.

You're reporting an error for "CR – Nov 2016 – L3 – Q2c – Financial instruments: Recognition and measurement"

FM – Nov 2020 – L2 – Q3c – Foreign exchange risk and currency risk management

Explain the difference between credit risk and liquidity risk in financial management.

You're reporting an error for "FM – Nov 2020 – L2 – Q3c – Foreign exchange risk and currency risk management"

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