Banking Financial Awareness · Commerce Accountancy

Credit, Debt, and Finance

1,382 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 commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

What do you mean by 'credit'?

  1. Agreement in which the borrower lends money, goods and services in return for the promise of future payment

  2. Agreement in which the lender lends money without the promise of future payment

  3. Agreement in which the moneylenders lends money to poor borrowers

  4. Agreement in which only banks lends money to borrowers
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
  • Credit means agreement between borrower and lender by which borrower lends money, goods and services in return for the promise of future payment.
  • If credit not repaid by the borrower then they are termed as defaulters.
  • Credit history of the borrowers will be affected.
  • In India, RBI supervises the credit of banking system.
Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Interest rate, collateral and documentation requirement and the mode of repayment together comprise, what is called the _____.

  1. security papers

  2. terms of credit

  3. credit

  4. all of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Terms of credit includes:  

Interest rates,

Collateral (security),

Documentation related to lending money and

The mode of repayment.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

An asset that the borrower owns and uses it as a guarantee to a lender until the loan is repaid.

  1. Security

  2. Guarantee

  3. Land

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

Collateral is an asset that a borrower offers to a lender as a security or guarantee for a loan, which the lender can seize if the borrower defaults. The other options refer to related concepts or general terms rather than the specific pledged asset.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

The high rate of interest on borrowing _____.

  1. increase the repayment ability.

  2. increase the debt burden.

  3. increase the easy accessibility to lenders.

  4. increases easy repayment options
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
  • Money borrowed on higher rates of interest will usually increase the debt burden.
  • Informal sources of credit charges higher rates of interest. 
  • Due to higher rate of interest the informal sources of credit are exploitative in nature.
Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

The interest charged by the bank from its borrowers is _____  then the interest it pays to its depositors. 

  1. the same

  2. higher

  3. lower

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

The interest charged by the bank from its borrowers is higher than the interest it pays to its depositors.
The difference between the interest paid by the bank to its depositors and interest paid by the borrowers to the bank is the income of the bank.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Which of the following is not included in credit exposure?

  1. Bridge Loans

  2. Working Capital Demand Loan

  3. Shares of the company underwritten by the bank

  4. Advances against the Banks fixed deposits granted to a company
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Credit exposure is the total amount of credit made available to a borrower by a lender. Advances against the banks fixed deposit granted to the company is not included in this because it is amount which the lenders grant to the borrower. 

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Which of the following is/are the major problem(s) of rural indebtedness ?
A) The Indian farmer borrows year after year but is not a position to clear off his loans.
B) The size of the loans taken by the Indian farmer is too large whereas his agricultural output is not large enough to play off his debt.
C) Most of the farmers are still taking loans from the informal sources, which charge a very high rate of interest.

  1. Only A

  2. Only B

  3. Only C

  4. All A, B and C
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The major problems of rural indebtedness is that the Indian farmers borrows loan every year from the informal sources which charge very high rate of interest. Even the amount of the loan is very huge which the farmers are not able to repay from their annual earnings which creates a debt trap out of their life. 

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

If credit facility applied for is rejected, the reasons therefore should be briefly mentioned in the __________.

  1. loan applications received and disposal register

  2. opinion reports

  3. loan rejection register

  4. none of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

If the credit facility applied for in a bank is rejected due to any reason, then it is the responsibility of the respective bank to state the reasons briefly on the loan application received by the bank from the account holder and on the disposal register thereafter. 

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Which of the following refers to sub prime mortgage?

  1. Lending done by banks at rates below PLR

  2. Funds raised by the banks at sub-Libor rates

  3. Group of banks which are not rated as prime banks as per Banker's Almanac

  4. Lending done by financing institutions including banks to customers not meeting with normally required credit appraisal standards
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Subprime mortgage lending refers to providing loans to borrowers who have poor credit histories or do not meet the standard creditworthiness requirements, often at higher interest rates.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Which of the following correctly describes what sub-prime lending is?
A. Lending to the people who cannot repay the loans
B. Lending to the people who are high-value customers of the banks.
C. Lending to those who are not a regular customer of a bank

  1. Only (A)

  2. Only (B)

  3. Only (C)

  4. All (A), (B) and (C)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Subprime lending means giving loans to people who may have difficulty maintaining the repayment schedule, sometimes reflecting setbacks, such as unemployment, medical emergencies, etc.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

The person who provides loan is known as a _______________.

  1. money lender

  2. borrower

  3. payer

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

The person who provides loan is known as a money lender. In other words, the person who lends money to someone or any institution for the purpose of personal expenditure like consumption of goods and services or investment is known as a money lender. 

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

If the periodic payments are made at the end of each period; the annuity is called _________________.

  1. annuity due

  2. an immediate annuity

  3. ordinary annuity

  4. (B) or (C)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

An annuity where payments are made at the end of each period is called an ordinary annuity or an immediate annuity.

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Interest is____.

  1. money loaded

  2. money borrowed

  3. extra money paid on borrowed money

  4. borrowed run and above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Interest refers to payment against the loan which we borrow from other people. It is the regular charge which a borrower pay to the lender for holding a sum of money of the lender. So, interest is the excess money which is paid by the borrower for holding a specified sum of money. Therefore, interest is the extra money paid on borrowed money. 

Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

Quantitative measures aim at influencing total volume of credit.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

True.

Quantitative measures of monetary policy includes those instruments which focus on the overall supply of the money. It influences the total volume of credit in the economy. It includes: 

A. Two Policy Rates: 

Bank rate is the rate charged on the loans offered by the Central bank to the commercial banks without any collateral. It is increased at the time of inflation to reduce the money supply in the economy and vice versa. 

Repo rate is the rate charged on the secured loans offered by the Central bank to the commercial banks that includes collateral. It is increased at the time of inflation to reduce the  money supply in the economy and vice versa. 

B. Two Policy Ratio:

Statutory Liquidity Ratio (SLR) refers to liquid assets that the commercial banks must hold on daily basis as a percentage of their total deposits. SLR is determined by the central bank and is a legal requirement to be fulfilled by the commercial banks.  It is increased at the time of inflation to reduce the money supply in the economy and vice versa. 

Cash Reserves Ratio (CRR) refers to the proportion  of total deposits of the commercial banks which they must  keep as cash reserves with the central bank. The ratio is fixed by the central bank and is varied from time to time to control the supply of money in the economy depending upon the prevailing situation of inflation or deflation.

C. Open Market Operations: 

Open market operation (OMO) is a monetary policy by the central bank in which the bank deals in the sale and purchase of securities in the open market to control the supply of money in the economy. By selling the securities, the central bank soaks liquidity from the economy and by buying the securities, the central bank releases liquidity.