Banking Financial Awareness ยท 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

What debts are not dischargeable in Chapter 7 Bankruptcy?

  1. Student loans

  2. Taxes

  3. Child support

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

Student loans, taxes, child support, and alimony are not dischargeable in Chapter 7 Bankruptcy.

Multiple choice

What is the effect of Chapter 7 Bankruptcy on a debtor's credit score?

  1. It will improve the debtor's credit score

  2. It will have no effect on the debtor's credit score

  3. It will lower the debtor's credit score

  4. It will destroy the debtor's credit score
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Filing for Chapter 7 Bankruptcy will lower the debtor's credit score. The negative impact of bankruptcy on a credit score can last for up to 10 years.

Multiple choice

What is the effect of Chapter 7 Bankruptcy on a debtor's co-debtors?

  1. The co-debtors are also discharged from their debts

  2. The co-debtors are not discharged from their debts

  3. The co-debtors are discharged from their debts only if they file for bankruptcy themselves

  4. The co-debtors are discharged from their debts only if the debtor files for bankruptcy under Chapter 13
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Co-debtors are not discharged from their debts when the debtor files for Chapter 7 Bankruptcy. The co-debtors remain liable for the debt and the creditor can still pursue them for payment.

Multiple choice

What is the effect of Chapter 7 Bankruptcy on a debtor's future employment?

  1. It will make it more difficult for the debtor to get a job

  2. It will have no effect on the debtor's ability to get a job

  3. It will make it easier for the debtor to get a job

  4. It will depend on the type of job the debtor is applying for
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The effect of Chapter 7 Bankruptcy on a debtor's future employment will depend on the type of job the debtor is applying for. Some employers may be reluctant to hire someone who has filed for bankruptcy, while others may not be concerned about it.

Multiple choice

Which of the following is NOT a major credit rating agency?

  1. Moody's

  2. Standard & Poor's

  3. Fitch Ratings

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

Moody's, Standard & Poor's, and Fitch Ratings are the three major credit rating agencies. Morningstar is a financial research and investment advisory firm.

Multiple choice

What is a credit default swap (CDS)?

  1. A financial instrument that provides protection against the risk of default on a loan or bond

  2. A type of insurance policy that covers the risk of a borrower defaulting on a loan

  3. A derivative contract that allows investors to speculate on the creditworthiness of a company or country

  4. A hedging strategy used by investors to reduce their exposure to credit risk
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A credit default swap (CDS) is a financial instrument that provides protection against the risk of default on a loan or bond. It is a type of insurance policy that covers the risk of a borrower defaulting on a loan.

Multiple choice

How does a CDS work?

  1. The buyer of a CDS pays a premium to the seller in exchange for a guarantee that the seller will pay the buyer the face value of the loan or bond if the borrower defaults

  2. The seller of a CDS pays a premium to the buyer in exchange for a guarantee that the buyer will pay the seller the face value of the loan or bond if the borrower defaults

  3. The buyer and seller of a CDS agree to exchange payments based on the creditworthiness of the borrower

  4. The buyer and seller of a CDS agree to share the risk of default on the loan or bond
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In a CDS, the buyer of the CDS pays a premium to the seller in exchange for a guarantee that the seller will pay the buyer the face value of the loan or bond if the borrower defaults. The premium is typically a percentage of the face value of the loan or bond.

Multiple choice

What types of debts are subject to the automatic stay?

  1. Secured debts

  2. Unsecured debts

  3. Both secured and unsecured debts

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

The automatic stay applies to both secured and unsecured debts. Secured debts are debts that are backed by collateral, such as a mortgage or car loan. Unsecured debts are debts that are not backed by collateral, such as credit card debt or medical bills.

Multiple choice

What are the exceptions to the automatic stay?

  1. Criminal proceedings

  2. Tax debts

  3. Domestic support obligations

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

The automatic stay does not apply to criminal proceedings, tax debts, or domestic support obligations. This means that creditors can still pursue these types of claims against the debtor, even after the bankruptcy petition is filed.

Multiple choice

What happens if a creditor violates the automatic stay?

  1. The creditor can be held in contempt of court

  2. The creditor can be sued for damages

  3. Both of the above

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

If a creditor violates the automatic stay, they can be held in contempt of court and/or sued for damages by the debtor.

Multiple choice

What are the different types of bankruptcy?

  1. Chapter 7

  2. Chapter 11

  3. Chapter 13

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

The three most common types of bankruptcy are Chapter 7, Chapter 11, and Chapter 13. Chapter 7 is a liquidation bankruptcy, in which the debtor's nonexempt assets are sold and the proceeds are distributed to creditors. Chapter 11 is a reorganization bankruptcy, in which the debtor proposes a plan to repay creditors over time. Chapter 13 is a reorganization bankruptcy for individuals with regular income, in which the debtor proposes a plan to repay creditors over a period of 3 to 5 years.

Multiple choice

What are the consequences of filing for bankruptcy?

  1. The debtor's credit score will be damaged

  2. The debtor may lose their job

  3. The debtor may have to surrender their assets

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

Filing for bankruptcy can have a number of consequences, including damaging the debtor's credit score, causing the debtor to lose their job, and requiring the debtor to surrender their assets.

Multiple choice

What is the name of the federal program that allows students to consolidate their federal student loans?

  1. Direct Consolidation Loan

  2. Federal Consolidation Loan

  3. Student Loan Consolidation Program

  4. Loan Consolidation Program
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The name of the federal program that allows students to consolidate their federal student loans is the Direct Consolidation Loan.

Multiple choice

What is the name of the federal program that allows students to pay back their federal student loans based on their income?

  1. Income-Based Repayment

  2. Pay As You Earn Repayment

  3. Revised Pay As You Earn Repayment

  4. Income-Contingent Repayment
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The name of the federal program that allows students to pay back their federal student loans based on their income is Income-Based Repayment.

Multiple choice

What is the annual percentage rate (APR) on a loan?

  1. The total amount of interest you will pay on a loan over its lifetime.

  2. The monthly interest rate on a loan.

  3. The total amount of money you will pay back on a loan, including interest and principal.

  4. The amount of money you will pay each month on a loan.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The annual percentage rate (APR) is the total amount of interest you will pay on a loan over its lifetime, expressed as a percentage of the loan amount.