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 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). 

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

One of the most important quantitative tools of credit control is _______.

  1. deficit financing

  2. moral suasion

  3. market borrowings

  4. statutory liquidity ratio
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

 SLR (Statutory Liquidity Ratio) is the reserve requirement given by the Reserve Bank of India that the commercial banks in India are required to maintain in the form of cash, gold reserves, government approved securities before providing credit to the customers.

If the SLR is increased by the RBI, it will reduce the money supply in the economy and vice versa.

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

Loans against Shares/Debentures can be sanctioned against the security of ________.

  1. preference share and convertible debentures

  2. fully paid equity shares and debentures in demat form

  3. all shares and debentures in physical form

  4. only preference share and partly paid debentures
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The loans taken for the purchase of shares and debentures of any company can be sanctioned by any bank against a collateral security of some fully paid equity shares and debentures of some other company in demat form i.e. non materialistic form. 

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

Match the items of List-I with those in List-II and select the correct answer.

List-I List-II
(a) Bank Rate Policy 1. Involving the shortening of the currency of bills eligible for rediscount
(b) Credit Rationing 2. Involving the Purchase and sale of securities in the open market
(c) Variable Reserve System 3. Involving the alteration of discount rate
(d) Open Market Operations 4. Involving the variation of the minimum reserves
  1. $(a) - 1, (b) - 4, (c) - 2, (d) - 3$
  2. $(a) - 2, (b) - 1, (c) - 3, (d) - 4$
  3. $(a) - 4, (b) - 2, (c) - 1, (d) - 3$
  4. $(a) - 3, (b) - 1, (c) - 4, (d) - 2$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Bank Rate Policy involves altering the discount rate (a-3). Credit Rationing involves shortening the currency of bills (b-1). Variable Reserve System involves varying minimum reserves (c-4). Open Market Operations involve buying/selling securities (d-2).

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

Bonds or debentures issued by Securitization company should bear interest not less than ______.

  1. Bank Rate

  2. Prime Lending Rate

  3. 1.5% over the Bank Rate

  4. 1.5% over the Saving Rate
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Securitization companies issue security receipts or bonds to investors. Regulations typically mandate a minimum interest rate to ensure attractiveness and fairness, which is set at 1.5% above the Bank Rate.

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

If a country's lending is more than its borrowing from the rest of the world,it is a _________.

  1. net borrower

  2. net lender

  3. surplus state

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

If a country's lending is more than its borrowing from the rest of the world, it is known as a net lender. In such a case, the country is regarded as a creditor nation. It is very easy for such nations to raise credit from other nations in monetary terms. 

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

A country is treated a debtor nation if ______.

  1. it has a history of more lending than borrowing

  2. it has a history of more borrowing than lending

  3. it has positive surplus

  4. it has negative surplus
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

If a country's borrowing is more than its lending to the rest of the world, it is known as a net borrower. In such a case, the country is treated as a debtor nation because it has a history of more  borrowings(taking credits) than 

lending(giving credits). 

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

If a country's borrowing is more than its lending from the rest of the world,it is a _______.

  1. net borrower

  2. net lender

  3. surplus state

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

If a country's borrowing is more than its lending to the rest of the world, it is known as a net borrower. In such a case, the country is treated as a debtor nation. . It is very difficult for such nations to raise credit from other nations in monetary terms. 

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

A country is treated a creditor nation if ________.

  1. it has a history of more lending than borrowing

  2. it has a history of more borrowing than lending

  3. it has positive trade surplus

  4. it has negative trade surplus
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

If a country's lending is more than its borrowing from the rest of the world, it is known as a net lender. In such a case, the country is treated as a creditor nation because it has a history of more lending(giving credits) than borrowings(taking credits).