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

What is the meaning of amount of bills?

Directions: Read the passage and answer the following question.

ALL THAT GLITTERS

His first summer at college, Jimmy operated a candy route on the south side of Chicago.
I'd like to make one thing clear, said the boss the day he hired Jimmy. If you extend credit to anyone, it's your responsibility, your neck. We'll take any delinquencies out of your bond, see?
The customers were small mom and pop neighbourhood stores and an occasional supermarket. Most were poor credit risks, only marginally profitable at best.
At 7:00 A.M. Jimmy stocked the shelves of his rattly company van with a variety of candy bars-coconut, peanut, peppermint-both chewy and soft. The rule was that he'd be stuck with what didn't sell unless he traded it with another driver.
In a few weeks, several store owners had befriended Jimmy and favoured him with the bulk of their candy businessAmong them was Gus Fantas, a small, beaming, friendly man in his early forties who owned a tiny, sparsely stocked, rinky-dink convenience store in the middle of the black belt. Gus was one of those who let Jimmy make up his orders for him.
Whatever you think I need is okay with me, he' d say. How much do I owe?
Gus would push the NO SALE key on the cash register, withdraw a fistful of cash, and count out the desired amount of bills with a fl ourish, making sure that Jimmy saw how flush he was. Gus's store, which Jimmy visited every Thursday, was his favorite stop. He and Gus had such congenial talks he found it hard to tear himself away for the next call. They talked about a range of subjects: the economy, Gus's war experiences, Jimmy's long-range plans and women. Gus was a true man of experience, informed and wise.
I've got to go, Gus, Jimmy would say, still lingering. I've got to go.
Jimmy, you got it made, Gus said.
What do you mean? Jimmy asked.
The niggers go crazy over your peanut bars. 'Course it's junk but it fills 'em up.
Are you saying the customers are eating candy instead of real food? Jimmy asked. He emphasized customer because the word nigger bothered him.
Hey, Jimmy, where you been? The niggers don't have enough money for real food. See the dust on those cans of vegetables. Your candy moves ten times as fast which is okay with me. I make more money on the candy anyway.
That's not right, Gus. You shouldn't encourage them to eat so much of my stuff.
You want to sell, don't you? Get wise, Jimmy, unless you want to finish last.
On the second Thursday in August Jimmy made up Gus's order as usual. Gus pushed the NO SALE key on the cash register but this time the bill sections were empty.
Christ, Jimmy, I forgot to go to the bank for cash this morning. How about a cheque this time?
I'm sorry, Gus, but cheques are against the rules. The company won't take them.
Well, that's too bad. I s'pose you'll just have to take back the candy.
I don't want to do that, Gus.
I know you don't, Jimmy. You're a real friend. But I wouldn't expect you to break company rules.
Well, I could take your cheque but I'd have to cover it personally.
You mean you'd do that, Jimmy?
If it bounced I'd be responsible.
You have my word. My check's as strong as steel. You've got nothing to worry about.

  1. Bank note

  2. Account

  3. Draft

  4. Money
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In the context of the passage, 'bills' refers to paper money or bank notes used for payment. Option A identifies this correctly.

Multiple choice

Credit risk may not arise in which of the following?

  1. Loan for purchase of a house

  2. Loan granted to a staff member

  3. Loan allowed against deposit of the bank

  4. None of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A credit risk is the risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased collection costs. The loss may be complete or partial. In an efficient market, higher levels of credit risk will be associated with higher borrowing costs. All the given options talk about the loan and can arise credit risk. Thus, option 4 is the correct answer. 

Multiple choice

First item on the debit side of the account is discharged reduced by the first item on the credit side in the chronological order as per which of the following?

  1. Rule if appropriation

  2. Rule in Clayton case

  3. Right of set off

  4. Banker’s general lien
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

This rule, which was laid down in the famous case Devayanas Vs Noble states the rule of appropriation in running accounts like Cash Credit and Overdraft Accounts. As per this rule, each withdrawal in a cash credit account is considered as a new loan and each deposit as a repayment of the loan in the order in which it is made.

Multiple choice

Revolving credit is similar to which of the following?

  1. A debit card

  2. A pre-paid card

  3. A credit card

  4. All of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Revolving credit is very similar to a credit card. The lending institution grants you a maximum credit limit, which you can use to make purchases at any time and (usually) on any goods. Many small business owners and corporations use revolving credit to finance capital expansion or as a safeguard in the event of cash flow problems. 

Multiple choice

When the seller of machinery or other capital equipment is agreeable to extend long term credit to the buyer of the machinery, on the guarantee of a bank, such guarantee is called ______.

  1. <font size="2">s</font>pecific guarantee

  2. <font size="2">d</font>eferred payment guarantee

  3. <font size="2">p</font>articular guarantee

  4. <font size="2">p</font>erformance guarantee
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Deferred Payment Guarantee is a guarantee for a payment which has been deferred or postponed. The necessity to issue deferred payment guarantee arises in case of purchase of capital goods like machinery. Deferred Payment Guarantee is issued by the bank at request of customer when he purchases goods or machinery from a creditor on the terms of payment after a specified time in lump sum or in installments.

Multiple choice

Which of the following conditions must be satisfied to treat a payment as a payment in due course?

(a) payment as per apparent tenor (b) payment of holder or holder in due course (c) payment in good faith and without negligence (d) payment should be made through the bank account only

  1. (a) to (c)

  2. (a) to (d)

  3. (a), (c) and (d)

  4. (a), (b) and (d)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

"Payment in due course” means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof, under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned as in "THE NEGOTIABLE INSTRUMENTS ACT, 1881".