The statement says, "Banks should always check the financial status of a client before lending money." On this basis, which of the following assumptions are implicit? I. Checking before lending would give a true picture of the client s financial status. II. Clients sometimes may not present the correct picture of their ability to repay the loan amount to the bank.

Introduction / Context:
This statement and assumption question concerns banking practice and credit risk. The statement recommends that banks should always check financial status before granting a loan. Assumptions here relate to the usefulness of checking and the possibility of clients misrepresenting their situation. We must decide which assumptions are necessary for this recommendation to be sensible and effective.

Given Data / Assumptions:

• Statement: Banks should always check the financial status of a client before lending money.
• Assumption I: Checking before lending would give a true or sufficiently accurate picture of the client s financial status.
• Assumption II: Clients sometimes may not present the correct picture of their ability to repay the loan amount.
• Banks want to reduce the risk of non repayment and bad loans.

Concept / Approach:
For the recommendation to make sense, banks must believe that independent checking will reveal information that is more reliable than what clients informally convey. If checking could not improve knowledge, it would be a waste. This is captured by Assumption I. At the same time, if clients always gave completely honest and complete information, there would be less need for independent checking. The statement emphasises the importance of checking, suggesting that relying on client statements alone is risky; this is captured by Assumption II. Together, the assumptions show why an independent check adds value and is necessary.

Step-by-Step Solution:
Step 1: Examine Assumption I. If verification processes did not produce a true or near true picture, recommending checks would not help in reducing risk.Step 2: Therefore the statement assumes that financial statements, reports, or credit histories obtained through checking are generally reliable.Step 3: Examine Assumption II. The stress on always checking suggests that banks should not rely only on what clients say.Step 4: That makes sense only if there is a chance that some clients hide debts, exaggerate income, or otherwise misrepresent their finances.Step 5: Hence both Assumption I and Assumption II are necessary to justify the recommendation.

Verification / Alternative check:
If we deny Assumption I and say checking does not reveal a true picture, then checking cannot improve lending decisions and the advice loses meaning.If we deny Assumption II and say clients always present the correct picture, independent checking becomes unnecessary duplication.Thus both assumptions must hold for the statement to be reasonable banking advice.

Why Other Options Are Wrong:
Option A is wrong because without Assumption II, client dishonesty or omission would not be a concern, and checking would add little value.Option B is wrong because without Assumption I, even if clients misrepresent, additional checking would still not help.Option C is wrong because the statement does not work with just one assumption; both are needed together.

Common Pitfalls:
One mistake is to treat one of the assumptions as obvious and forget that both reliability of checks and possible misrepresentation make checks necessary.Another pitfall is to think that banks check only out of habit, not real risk considerations, but reasoning questions expect rational motives.

Final Answer:
Therefore both assumptions are implicit in the recommendation, so the correct answer is If both I and II are Implicit.