FIN 701 Study Guide - Libor, Prime Rate, Credit Risk
12 Nov 2013
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Credit quality problems can cause fi to become insolvent or result in such significant drain on capital and net worth that they adversely affect growth prospects and ability to compete with other domestic and international fis. Loans can be short-term or long-term ranging from ,000 to million or more to major corporations. Syndicated loan loan provided by group of fi as opposed to single lender. Structured by the lead fi (or agent) and the borrower and once terms are set (rates, fees, and covenants), pieces of the loan are sold to other fis. Secured loan loan that is backed by first claim on certain assets (collateral) of the borrower if default occurs. Unsecured loan loan that has only a general claim to assets of the borrower if default occurs. Loans can be made at either fixed or floating rates of interest. Fixed-rate loan has rate of interest set at beginning of contract period.
