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

Raising of margin requirement _______ the borrowing capacity.

  1. reduces

  2. increases

  3. stabilizes

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

Margin requirement refers to the difference between the current value of the security offered for loan (called collateral) and the value of loan granted. By raising the margin requirement, the borrowing capacity of the borrower reduces as with the same amount of loan borrowed, the value of the loan decreases due to high margin requirement. 

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

Credit creation is

  1. Process where money is given by banks through loan

  2. Process where the money is taken by lenders

  3. Process by which the money is taken by depositors

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

Credit creation is the process by which banks expand the money supply through lending, as deposits are used to create new loans.

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

Limitations for the demand of credit are

  1. Demand should exist in the market

  2. Amount of loan granted should increase the paying capacity of borrower

  3. Bad debts should be avoided

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

Effective credit management requires market demand, the borrower's ability to repay, and the mitigation of bad debts to ensure the sustainability of the lending process.

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

Which of these is a Quantitative Method of Credit Control?

  1. Bank Rate

  2. Moral Suasion

  3. Margin Requirements

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

Quantitative methods of credit control regulate the total volume of credit in the economy. The Bank Rate is a classic quantitative tool, whereas Moral Suasion is a qualitative or selective method.

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

An asset owned by borrowers and pledged as a guarantee to obtain loan is known as _____ .

  1. rate of interest

  2. term of credit

  3. collateral

  4. document
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

An asset owned by borrowers and pledged as a guarantee to obtain loan is known as collateral.
Collateral is a form of security taken from the borrowers of loan by the banks or co-operative societies to lend loans.
Collateral is a part of terms of credit of the formal sources of credit.

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

Self Help Groups are issued loans at _____ .

  1. no interest

  2. reasonable rate of interest

  3. high rate of interest

  4. exorbitant rate of interest.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Self Help Groups issue loans at reasonable rate of interest.
In a SHG, important decisions in regard to loan and savings are taken by group members.
SHG is a mutual help group who provide support among themselves.
They come together to solve their economic issues and earn income.

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

Easy term of credit includes _____ .

  1. high rate of interest

  2. lesser number of collateral

  3. higher number of documents

  4. steep condition of repayment
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Easy term of credit includes steep condition of repayment.
Tougher terms of credit include higher rates of interest, collateral security and more number of documents related to loan.

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

Teaser rates are related to which of the following types of loans?

  1. Home Loans

  2. Personal Loans

  3. Auto Loans

  4. Reverse Mortgage Loans
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Teaser Rate: A teaser rate is a low adjustable introductory interest rate which is charged to customers during the initial stages of a loan. The rate, which can be as low as zero per cent, but is not permanent. The rate advertised for a loan, credit card or deposit account in order to attract potential customers to obtain the service. Typically the teaser rate is 0%. The teaser rate is only temporary. After its expiration, the rate increases to a normal or much higher than normal rate, and in some cases, the borrower cannot keep up with making payments.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

The current ratio of a company is 2: 1. Which of the following suggestions would improve the ratio?

  1. To pay a current liability

  2. To borrow money on an interest-bearing promissory note

  3. To purchase stocks for cash

  4. To give an interest-bearing promissory note to a creditor to whom money was owed on current account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A current ratio of 2:1 means current assets are double current liabilities. Borrowing money on a promissory note increases both current assets (cash) and current liabilities (notes payable) by the same amount, which mathematically improves the ratio when the initial ratio is greater than 1:1.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Cash discount terms offered by trade creditors should never be accepted because __________________.

  1. Benefit is very small

  2. Cost is very high

  3. No sense to pay earlier

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

Cash discount is allowed by the firms to speed up the cash collections. 


If cash discount is allowed by the creditors, business have to make a trade off between the earning from cash discount verses the cost of repaying the amount. 

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

In lease system, interest is calculated on _________________.

  1. Cash down payment

  2. Cash price outstanding

  3. Hire purchase price

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

If the rate of interest is not given (the cash price and amount of each instalment being given), interest will be calculated on the basis that the interest for each year will be in the ratio of amounts outstanding.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

'Penal rate' is also known as _____________.

  1. rate of interest

  2. bank rate

  3. rate of capital formation

  4. rate of unemployment
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Bank Rate is now aligned to Marginal Standing Facility (MSF) rate, also called the penal rate at which banks can borrow money from the central bank over and above what is available to them through the LAF window.

LAF is a facility extended by the Reserve Bank of India to the scheduled commercial banks (excluding RRBs) and primary dealers to avail of liquidity in case of requirement or park excess funds with the RBI in case of excess liquidity on an overnight basis against the collateral of Government securities including State Government securities. Basically LAF enables liquidity management on a day to day basis.

Marginal Standing Facility (MSF) is a new scheme announced by the Reserve Bank of India (RBI) in its Monetary Policy (2011-12) and refers to the penal rate at which banks can borrow money from the central bank over and above what is available to them through the LAF window.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

_______ is the interest rate at which a central bank provides loans to other banks.

  1. Repo rate

  2. Borrowing rate

  3. Bank rate

  4. Treasury rate
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The Bank Rate is the official interest rate at which the central bank (RBI) is prepared to buy or rediscount bills of exchange or other commercial paper eligible for purchase under the RBI Act.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

Select the correct statements regarding the Marginal Standing Facility using the code given below:
1. It functions as the last resort for banks to borrow short-term funds.
2. This is on the line of the existing LAF' and is pan of it.
3. Being a penal rate, this is a costlier route than repo.
4. This is linked to the net demand and time liabilities of the banks. 

  1. 1,2 and 3

  2. 2,3 and 4

  3. 1,3 and 4

  4. 1,2,3 and 4
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 RBI announced this route in 2011−122011−12 as a 'penal' route for banks to borrow once they have exhausted all borrowing option, i.e., the Repo route. MSF rate is regulated by the RBI above the current Repo rate. This route can be used by the banks for only overnight borrowings and is linked to their net demand and time liabilities (NDTL).