Banking Financial Awareness · Commerce Accountancy

Credit, Debt, and Finance

1,435 Questions

This topic covers essential concepts of credit, debt, and finance including bankruptcy, debt recovery, and financial acts. These questions are frequently asked in banking and IBPS exams. Test your knowledge of financial terminology and loan classifications.

Debt recovery actsBankruptcy filing proceduresFinancial classificationsMedium term financeCredit loss management

Credit, Debt, and Finance Questions

Multiple choice

NPA is a classification used by financial institutions. It refers to loans that are in jeopardy of default. With effect from March 31, 2004, a non-performing asset (NPA) is deemed to be a loan or an advance where the account remains ‘out of order’ for a period of more than ____, in respect of an overdraft/cash credit.

  1. 30 days

  2. 45 days

  3. 60 days

  4. 90 days
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

NPA is a classification used by financial institutions. It refers to loans that are in jeopardy of default. With effect from March 31, 2004, a non-performing asset (NPA) is deemed to be a loan or an advance where the account remains ‘out of order’ for a period of more than 90 days, in respect of an overdraft/cash credit.

Multiple choice

What is the definition of repo rate in the banking sector?

  1. The rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds

  2. The amount of funds that the banks have to keep with the central bank

  3. The rate at which the central bank borrows money from commercial banks

  4. The amount that the commercial banks are required to maintain in the form of gold or govt. approved securities before providing credit to the customers
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Repo rate (repurchase rate) is the rate at which the central bank (RBI in India) lends money to commercial banks against government securities. It is a key monetary policy tool used to control inflation and liquidity. When banks need funds for short-term requirements, they borrow from the central bank at this rate by selling securities with an agreement to repurchase them at a predetermined price and date.

Multiple choice

What does the term ‘leverage’ mean in the banking sector?

  1. Increase in capital

  2. Ratio of assets to capital

  3. Decrease in capital

  4. An asset, including a leased asset
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In banking, leverage refers to the ratio of a bank's total assets to its capital (equity). It measures how much the bank has borrowed relative to what it owns and indicates the level of risk the bank is taking. A higher leverage ratio means more assets per unit of capital, indicating greater risk-taking. This is a key metric in bank regulation under Basel norms. Leverage does not mean increase or decrease in capital itself, nor does it refer to a leased asset.

Multiple choice

A Hindu widow borrowed money from a lender for the purpose of filling a suit for maintenance. The lender advanced money at 100 percent rate of interest. The act of the money lender is induced by

  1. coercion

  2. undue influence

  3. fraud

  4. misrepresentation
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Undue influence (Section 16 of Indian Contract Act) occurs when one party dominates the will of another through a relationship of trust and confidence. A money lender lending at 100% interest to a vulnerable widow for a basic need (maintenance suit) exploits this fiduciary relationship. The unconscionable interest rate and the widow's disadvantaged position clearly show the lender abused their position of influence over her.

Multiple choice

For which of the following loan documents can floating interest rate be made applicable, which does not have a fixed interest rate during its entire life span?

  1. Loan

  2. A bond

  3. Mortgage funds

  4. Deposits

  5. All of the above
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Floating interest rates can be applied to all listed instruments - loans, bonds, mortgage funds, and deposits. Unlike fixed rates that remain constant, floating rates are reset periodically based on a benchmark rate plus a spread, allowing them to adjust with market conditions throughout the instrument's life.

Multiple choice

In case of dishonour of bills receivable what effect will it have on the current ratio?

  1. Decrease in current asset and increse in current liability with the same amount

  2. Nil effect

  3. Increase in current assets and increase in current liability with the same amount

  4. Decrease in current assets and decrease in current liability

  5. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

There will be no effect on current assets and current liabilities. So the effect will be nil.

Multiple choice

Choose the word most similar in meaning to the word 'tutelage', as used in the passage.

Directions: Read the following passage carefully and select the most suitable answer according to the underlined word per corresponding number in the passage.

Globally, the working microfinance equation consists of borrowing funds cheaply and keeping loan defaults and overhead expenses sufficiently low. Microlenders, including Grameen, do this by charging colossal interest rates—as high as 60% or 70% — which is necessary to compensate for the risk and attract bank funding. But loans at rates much above the standard 15% would most likely be attacked as usurious in America. So, the question is whether there is a role for a Third World lender in the world's largest economy. Grameen America believes that in a few years it will be successful and turn a profit, thanks to 9 million US households untouched by mainstream banks and 21 million using the likes of payday loans and pawn shops for financing. But enticing the unbanked won't be easy. After all, profit has long eluded US microfinanciers and if it is not lucrative, it is not microlending, but charity. When Grameen first went to the US, in the late 1980s, it tripped up. Under Grameen's tutelage, banks started micro loans to entrepreneurs with a shocking 30% loss. But Grameen America says that this time results will be different because Grameen employees themselves will be making the loans, not training an American bank to do it.

  1. Austerity

  2. Auspices

  3. Creativity

  4. Dominance
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The passage states that under Grameen's 'tutelage', banks were trained to make microloans. Tutelage here means guidance, instruction, or protection given by someone with expertise. 'Auspices' means protection, support, or guidance - especially when given by an organization or patron. This matches the context of Grameen providing guidance to banks. 'Austerity' means severity, 'creativity' is unrelated, and 'dominance' implies control rather than teaching.

Multiple choice

Bank rate is the interest rate, charged on which of the following?

  1. Loans taken by banks from banks

  2. Loans taken by banks under bills re-discounting

  3. Loans taken on gold

  4. Loans taken by banks under bill discounting

  5. All of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Yes, it is correct choice. Bank rate  is the interest rate is charged on Loans taken by banks under bills re-discounting.

Multiple choice

What is holding period?

  1. Holding period is the period in which creditor will take the right on the assets of debtor.

  2. Holding period is the period in which customer will keep default stock before returning it to its supplier.

  3. Holding period is the period in which banker will keep the fund of customer before withdrawing by him.

  4. Holding period is the period in which investor will keep his investment.

  5. All the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Holding period is the period in which investor will keep his investment. Investment may be in stock, debentures or any other assets. Investor can invest his money for short period or long period. So, holding period may also be short period or long period. In a long position, holding period refers to the time between an asset's purchase and its sale. In a short sale, the holding period is the time between when a short seller initially borrows an asset from a brokerage and when he or she sells it back - in other words, the length of time for which the short position is held.

Multiple choice

In case of dishonour of bills receivable what effect will it have on current ratio?

  1. Decrease in current asset and increase in current liability with same amount.

  2. Nil effect.

  3. Increase in current assets and increase in current liability with same amount.

  4. Decrease in current assets and decrease in current liability.

  5. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

There will be no effect on current assets and current liabilities. So the effect will be nil.