Question

A bank is able to reduce the default risk of a line of credit by which method?

	a.	syndication
	b.	clean up requirement
	c.	annual review of customer's credit status
	d.	all of the above

The main benefits associated with a well-designed concentration system include:

	a.	higher opportunity costs
	b.	greater control over balances
	c.	less float
	d.	greater control over balances and improved investment returns.

Answer 1

A bank is able to reduce the default risk of a line of credit by the annual review of the customer's credit status.

syndication is when 2 or more bank comes for funding of the project & the project is too big for a single bank to fund it or expose itself to.

clean up requirement main purpose it the reduce the dependency on the line of credit for the payment of operating expenses, rather than using companies own cash.

Answer: C.
annual review of customer's credit status.

2. Answer: D. greater control overbalances and improved investment returns.

There is improved control over the balance by helping manage the flow and disbursements. It improves the overall return earned due to more cash available (and some times higher interest rate offered by banks on high cash available).