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

‘Sub-prime’ refers to

  1. lending done by banks at rates below PLR

  2. funds raised by banks at sub-libor rates

  3. group of banks which is not rated as prime bank as per Banker’s Almanac

  4. lending done by financing institutions including banks to customers not meeting with normally required credit appraisal standards

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

Correct answer is (4). 

Multiple choice

Reverse repo means

  1. injecting liquidity by the Central Bank of a country through purchase of government securities

  2. absorption of liquidity from the market by sale of government securities

  3. balancing liquidity with a view to enhance economic growth rate

  4. improving the position of availability of securities in the market

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

Option 2 is correct.

Multiple choice

Fixed deposits are offered with

  1. fixed interest rates

  2. floating interest rates

  3. fixed and floating interest rates

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

Fixed deposits offer fixed interest rates that remain constant throughout the deposit tenure. The rate is locked in at the time of deposit and doesn't fluctuate with market conditions, distinguishing FDs from floating rate instruments.

Multiple choice

Non-performing Advance means

  1. Non-functional assets

  2. Obsolete assets

  3. Assets transferred to company liquidator

  4. Loans becoming overdue beyond 90 days
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Non-performing Advances (NPAs) refer to loans or advances where principal or interest payments remain overdue for a period of 90 days or more. The 90-day threshold is the regulatory standard used by Indian banks to classify an asset as non-performing, triggering provisioning requirements and closer monitoring by regulators.

Multiple choice

The principal liability of a Joint Stock Bank relates to

  1. it's investment abroad

  2. it's investment at home

  3. repayment of it's customer's deposits

  4. it's requirements to make special deposits when requested
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A Joint Stock Bank's primary obligation is to repay deposits to its customers. Deposits form the main source of funds for banks, and the bank's core liability is to return these funds, either on demand or at agreed maturity. This is why deposit insurance and capital adequacy are critical regulatory requirements.

Multiple choice

A decrease in the provision for doubtful debts would result in

  1. an increase in liabilities

  2. a decrease in working capital

  3. a decrease in net profit

  4. an increase in net profit
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Provision for doubtful debts is an expense that reduces net profit. Decreasing this provision reduces the expense, thereby increasing net profit. It's important to note that this is an accounting estimate, not an actual cash transaction.

Multiple choice

Provision for doubtful debts is

  1. debited to Sundry Debtors Account

  2. credited to Sundry Debtors Account

  3. debited to Bad Debts Account

  4. debited to Profit & Loss Account
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Provision for doubtful debts is created by debiting the Profit & Loss Account, which reduces the net profit. It is not directly debited to the Sundry Debtors Account or Bad Debts Account. The provision is shown as a deduction from debtors in the balance sheet.

Multiple choice

Under the liquidity approach

  1. the most liquid assets are presented at the bottom of the balance sheet

  2. the least urgent payments are presented at the top of the balance sheet

  3. the most urgent payments are presented at the bottom of the balance sheet

  4. the least liquid assets are presented at the top of the balance sheet
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The liquidity approach presents assets in order of decreasing liquidity - most liquid at the bottom (cash), least liquid at the top (fixed assets like land and buildings). This ordering helps assess a company's ability to meet short-term obligations quickly. Option D correctly states this principle.

Multiple choice

Which of the following is non-current liability?

  1. Long term loans

  2. Current liabilities

  3. Bank overdraft

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

Non-current liabilities are obligations due after more than 12 months. Long-term loans (debentures, term loans) are typically payable over several years, making them non-current. Options B, C, and D are all current liabilities due within 12 months. Option A is correct.

Multiple choice

Interest received in advance account is

  1. personal A/c

  2. real A/c

  3. nominal A/c

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

Interest received in advance represents an obligation to provide service or return the amount. In traditional accountancy classification, this is a Personal Account because it represents the person who paid in advance. However, its nature is that of a liability.

Multiple choice

Which account is the odd one out?

  1. Provision for doubtful debts A/c

  2. Provision for discount on debtors A/c

  3. Reserve for discount creditors A/c

  4. Provision for depreciation account
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Provision for doubtful debts, Provision for discount on debtors, and Reserve for discount on creditors are all contra asset/liability accounts related to debtors and creditors. Provision for depreciation is the odd one as it relates to fixed assets, not debtors/creditors.

Multiple choice

What according to the passage is the crux of the matter?

Directions: Read the following passage and answer the question.
Without getting carried away by the wide-eyed protestations of innocence by the modern day Shylocks, there is increasingly lesser doubt that banks have been complicit in precipitating the present imbroglio and what’s more, the trail of evidence points towards sins not only of omission, which can be perhaps taken lightly, but explicit sins of commission which cannot be taken lightly. There is also perhaps an increasingly evident undercurrent of resentment against the money lenders within large sections of the population because even though the banks have almost certainly planted the nation head first in this bog of fiscal quagmire, so far they have been appearing to be getting away almost scot-free for their misdemeanors.
That could change pretty soon if the picture emerging from the darkness of the shadows of banking, mortgage sellers, buyers and evaluators is true, and, from the looks of it, it seems that the case is pretty water-tight. The regulators have smelt something fishy and have gone in for in-depth investigation and no, this is not the same as the sub-prime mortgage quicksand but a spin-off of the same with deeper legal ramifications. Despicable, as it may seem, banks are well within their rights to lend to sub-prime borrowers and to go in for foreclosure when regulatory obligations are fulfilled. What cooks the goose is the fact that many home mortgage lenders have resold the loans that they had granted to third and fourth parties through a bidding process. The loans are clubbed together in a common document which contains the salient characteristics of each loan. The document is then circulated and the loans are sold to the highest bidder. In the current rip-off, the successful bidders evidently got the loans evaluated during the due diligence period and found that many of the loans sanctioned by the primary lender did not pass muster the benchmark and the guidelines set by the merchant himself and instead of bringing it to the notice of the concerned regulators, they preferred to negotiate for lower purchasing prices with the merchant. The howler was that the secondary buyers did not bring the material information, which could have and would have affected the decision of the investors to park their money in these assets, to the notice of the investors who were buying into these loans and now we have a situation where everyone involved has tried in some manner or the other to keep the next link in the chain in the dark. Here we are, with loans granted without due diligence, being sold to investors who don’t have complete information about the same. Had it been based on pure ethical considerations, it might have slid past with just a rap on the knuckles for the offenders but something’s got to give in here.

  1. Unsecured consumer loans palmed off as secured mortgages.

  2. Housing loans sanctioned without completing due diligence.

  3. Failure of authorities in being vigilant during economic boom.

  4. Collusion of bankers in hoodwinking the system.

  5. Overstepping and breach of ethical protocol.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Correct; the fact that bankers first gave loans that didn't satisfy their guidelines and then neglected to inform subsequent investors into these loans of the same is the root problem.