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 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 correct about 'security' of a bank loan?

  1. Banks consider personal guarantee as the primary security for the loans they forward.

  2. Collaterals in the from of fixed assets are the secondary security for a loan.

  3. Unsecured loans are supported by only primary security.

  4. Every loan forwarded by banks are supported primary and secondary securities.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

'Signature' of the borrower is the primary security for any loan (such loans are known as 'unsecured loans; or even 'signature loans' ). All loans might not be supported by the secondary securities (fixed assets).

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

For the development of a country the credit should be _____.

  1. For a short period

  2. Easily available

  3. Cheap and affordable

  4. For a long period
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Economic growth is prerequisite for the economic development of the country.
Cheap and affordable credit (low-interest rates) is one of the prerequisites for economic growth of any country. 

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

An asset that a borrower uses as a guarantee is called _____.

  1. collateral

  2. debit card

  3. credit card

  4. deposits
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
  • Collateral is an asset taken by the banks / money lenders for lending money to its customers.
  • Collateral is a type of a security taken by the banks from its customers.
  • Collateral can be in the form of fixed deposit, property documents, etc.
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 does the terms of credit NOT include?

  1. Interest rate

  2. Collateral

  3. Documentation

  4. Lender's land
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

  • 1:Credit refers to a loan, an agreement in which the lender supplies the borrower with money, goods or services which is to be returned in future
    2:Terms of credit include interest rate, collateral (security) and documentation related to the lending of money.
Multiple choice commercial studies money loans from banks and financial institutions introduction to money - barter system owned fund and borrowed fund

The terms of credit comprise of _____.

  1. fixed deposit

  2. voter card

  3. collateral

  4. pan card
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
Interest rate, collateral and documentation requirement and the mode of repayment together comprise what is called the terms of credit.
They may vary depending on the nature of the lender and the borrower.
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 'collateral'?

  1. It is a liability that the borrower bears while taking loan

  2. It is a document used in the process of taking credit

  3. An asset that a borrower owns and the lender uses it as a guarantee until the loan is re-paid

  4. It is an asset
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

1:Collateral is a type of a security/guarantee taken by the banks from its customers.
2:Usually collateral are taken by the banks for lending money to its customers.
3:Collateral can be in the form of fixed deposit documents, property, documents, etc.

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

Credit from _______________ pushes the borrower into a painful situation.

  1. cooperatives

  2. SHG

  3. moneylenders

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

When a poor person takes a loan he does find it convenient to go to a bank basically because he is uneducated and even does not have a collateral to present in a bank.
Hence he reaches out to the informal sources of credit which are basically the moneylenders. When he goes to moneylenders the rates of interest charged by them is very high but since the borrower is in need he has no other option.

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

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.