Banking Financial Awareness ยท 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

How do selective credit controls affect the behavior of banks and other financial institutions?

  1. They encourage banks to lend more to the targeted sectors or activities

  2. They encourage banks to lend less to the targeted sectors or activities

  3. They have no effect on the behavior of banks and other financial institutions

  4. They make it more difficult for banks to lend to the targeted sectors or activities
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Selective credit controls are designed to encourage banks and other financial institutions to lend more to the targeted sectors or activities.

Multiple choice

What are the consequences of not repaying a student loan?

  1. The student's credit score will be damaged.

  2. The student may be sued by the lender.

  3. The student's wages may be garnished.

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

Failure to repay a student loan can result in damage to the student's credit score, a lawsuit from the lender, and garnishment of the student's wages.

Multiple choice

Which of the following is not a type of public debt instrument?

  1. Treasury bills

  2. Treasury bonds

  3. Treasury notes

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

Corporate bonds are not a type of public debt instrument, as they are issued by corporations rather than governments.

Multiple choice

What is the term used to describe the difference between the interest rate on a government bond and the interest rate on a comparable corporate bond?

  1. Credit spread

  2. Yield spread

  3. Risk premium

  4. Default premium
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Credit spread is the term used to describe the difference between the interest rate on a government bond and the interest rate on a comparable corporate bond.

Multiple choice

What is the term used to describe the process of converting short-term debt into long-term debt?

  1. Debt restructuring

  2. Debt refinancing

  3. Debt consolidation

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

Debt rollover is the term used to describe the process of converting short-term debt into long-term debt.

Multiple choice

What is the term used to describe the risk that a government will default on its debt obligations?

  1. Default risk

  2. Credit risk

  3. Sovereign risk

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

Sovereign risk is the term used to describe the risk that a government will default on its debt obligations.

Multiple choice

What is the term used to describe the process of issuing new debt to repay existing debt?

  1. Debt refinancing

  2. Debt restructuring

  3. Debt consolidation

  4. Debt rollover
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Debt refinancing is the term used to describe the process of issuing new debt to repay existing debt.

Multiple choice

What is the term for the minimum number of miles required to redeem a reward?

  1. Award threshold

  2. Mileage requirement

  3. Redemption minimum

  4. Mileage floor
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The award threshold is the minimum number of miles required to redeem a specific reward, such as a free flight or hotel stay.

Multiple choice

Which of the following is a common characteristic of project financing?

  1. Non-recourse debt

  2. Limited recourse debt

  3. Full recourse debt

  4. Personal guarantees
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Non-recourse debt is a type of loan where the lender has no recourse to the borrower's other assets in the event of default. This is common in project financing, as it limits the lender's risk to the project itself.

Multiple choice

How is the debt service coverage ratio (DSCR) calculated?

  1. Net operating income / Debt service

  2. EBITDA / Debt service

  3. Net income / Debt service

  4. Cash flow from operations / Debt service
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The debt service coverage ratio (DSCR) is a measure of a project's ability to generate sufficient cash flow to cover its debt service obligations. It is calculated by dividing the project's net operating income by its debt service.

Multiple choice

What is the Truth in Lending Act (TILA)?

  1. A law that requires lenders to disclose the terms of credit to borrowers before they sign a loan agreement.

  2. A law that prohibits lenders from charging excessive interest rates.

  3. A law that regulates the advertising of financial products and services.

  4. A law that protects consumers from identity theft.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

TILA is a federal law that requires lenders to provide borrowers with clear and concise information about the terms of their loans, including the interest rate, fees, and repayment schedule.

Multiple choice

What is the minimum credit score typically required to qualify for a travel rewards credit card?

  1. 580

  2. 650

  3. 720

  4. 800
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The minimum credit score typically required to qualify for a travel rewards credit card is 650. However, some cards may have higher or lower credit score requirements.

Multiple choice

What is the term used to describe the situation when a country's debt becomes unsustainable and it is unable to make payments?

  1. Debt Default

  2. Debt Restructuring

  3. Debt Crisis

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

A debt crisis occurs when a country is unable to repay its debts, leading to a loss of confidence in the country's economy and financial system.

Multiple choice

What is the term used to describe the situation when a country's debt is so high that it is difficult to manage and repay?

  1. Debt Default

  2. Debt Restructuring

  3. Debt Crisis

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

A debt trap occurs when a country's debt becomes so high that it is difficult to manage and repay, leading to a vicious cycle of borrowing more money to pay off existing debt.

Multiple choice

What is the term used to describe the situation when a country's debt is so high that it is at risk of default?

  1. Debt Default

  2. Debt Restructuring

  3. Debt Crisis

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

A debt crisis occurs when a country is unable to repay its debts, leading to a loss of confidence in the country's economy and financial system.