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

Most loans from informal lenders carry a very high interest rate and do little to increase the income of the

  1. borrowers

  2. lenders

  3. people

  4. buyers

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

Most loans from informal lenders carry a very high interest rate and do little to increase the income of the borrowers. Thus, it is necessary that banks and cooperatives increase their lending particularly in the rural areas, so that the dependence on informal sources of credit reduces. 

Multiple choice

Assertion (A): Money lent to a minor for luxuries cannot be recovered. Reason (R): Lending money for luxuries to a minor is illegal.

  1. Both (A) and (R) are true and (R) is the correct explanation of (A).

  2. Both (A) and (R) are true and (R) is not the correct explanation of (A).

  3. (A) is true, but (R) is false.

  4. (A) is false, but (R) is true.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Money lent to a minor for necessities can be recovered from his/her estate. Contract lending money for luxuries to a minor is void, but not illegal.

Multiple choice

Which of the following best defines a floating-rate bond?

  1. A bond with a fixed interest rate and better yield than varying interest rate bond

  2. A bond with a fixed interest rate and lower yield than varying interest rate bond

  3. A bond with a varying interest rate and better yield than fixed interest rate bond

  4. A bond with a varying interest rate and lower yield than fixed interest rate bond

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

Correct option is (4).

Multiple choice

Directions: In the question below a question is followed by two arguments numbered I and II. You have to decide which of the given arguments is/are ‘strong'.

Question: Should there be only one rate of interest for term deposits of varying durations in banks? Arguments: I. No, people will refrain money for longer duration resulting into reduction of liquidity level of banks. II. Yes, this will be much simpler for the common people and they may be encouraged to keep more money in banks.

  1. if only Argument II is strong

  2. if only Argument I is strong

  3. if either Argument I or II is strong

  4. if neither Argument I nor II is strong

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Clearly, the proposed scheme would discourage people from keeping deposits for longer durations (the rate of interest being the same for short durations) and not draw in more funds. So, only argument I holds.

Multiple choice

Why is the offering of “teaser loans” by commercial banks a cause of ewconomic concern?

  1. The teaser loans are considered to be an aspect of sub-prime lending and banks may be exposed to the risk of defaulters in future.
  2. In India, the teaser loans are mostly given to inexperienced entrepreneurs to set up manufacturing or export units?

Which of the statements given above is/are correct?

  1. 1 only

  2. 2 only

  3. Both 1 and 2

  4. Neither 1 nor 2
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Statement 1 is correct. Teaser loans are considered an aspect of subprime lending, as they are usually offered to low-income home buyers. Unfortunately, when these borrowers try to refinance the loan before the rate increases, most will not qualify for standard mortgages. This leaves borrowers with increased monthly payments, which many cannot afford. This method of loaning is considered risky, as default rates are high. Statement 2 is incorrect. It has nothing to do with the experience of the entrepreneurs.

Multiple choice

Treasury bills are instruments of short-term borrowing. It is true in case of

  1. borrowings by government of India

  2. borrowings by state ministry

  3. borrowings by companies in forms of shares & debentures

  4. borrowings from world bank

Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Treasury bills are instrument of short-term borrowings by the Government of India, issued as promissory notes under discount. The interest received on them is the discount, which is the difference between the price at which they are issued and their redemption value. They have assured yield and negligible risk of default.

Multiple choice

Drawee means a person who

  1. makes the order

  2. accepts the bill

  3. takes the payment on due date

  4. is the creditor
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Correct Answer: drawee accepts the bill

Multiple choice

Interest accrued but not due means

  1. interest not paid as company defaulted in payment of interest

  2. interest not paid as the due date did not arrive

  3. interest paid and received by the debenture holders

  4. All of the above

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Correct Answer: Interest not paid as the due date did not arrive