Preview Questions Credit Analyst | Role Specific Skill

Question 1: What is the primary purpose of using Principal Component Analysis (PCA) in credit scoring models?

Which action should you take?

Choose only one option

To improve model interpretability by reducing the number of variables

To assess the non-linearity of relationships between variables

To increase the number of features in the dataset

To handle missing values in the dataset

Question 2: Which of the following profitability ratios is most useful for evaluating a company's ability to generate profit relative to revenue?

Which action should you take?

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Return on Assets (ROA)

Operating Profit Margin

Net Profit Margin

Return on Equity (ROE)

Question 3: In loan risk assessment, what does the term "Covenant Lite" refer to?

Which action should you take?

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Loans that have a high interest rate

Loans with strict financial covenants

Loans that are secured by high-quality collateral

Loans with minimal or no covenants

Question 4: When analyzing a company's Debt Service Coverage Ratio (DSCR), what does a ratio below 1 signify?

Which action should you take?

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The company has a balanced debt-to-equity ratio

The company generates more than enough income to cover its debt obligations

The company's profitability is increasing

The company generates insufficient income to cover its debt obligations

Question 5: How does "regularization" help prevent overfitting in credit scoring models?

Which action should you take?

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By removing irrelevant features from the dataset

By splitting the data into more training sets

By adding a penalty for larger coefficients to reduce model complexity

By increasing the complexity of the model

Question 6: Which of the following is a key component of the CreditRisk+ model developed by Credit Suisse for credit risk management?

Which action should you take?

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It applies a Normal distribution to estimate loss given default

It utilizes a Markov chain to simulate credit rating transitions

It relies on a Poisson distribution to model the number of defaults

It uses a binomial probability distribution