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

If del-credere commission is allowed for bad debt, consignee will debit the bad debt amount to

  1. commission earned account

  2. consignor account

  3. debtors account

  4. general trading account
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Del-credere commission is an additional commission paid to the consignee for guaranteeing the collection of debts from customers. When bad debts occur despite this guarantee, the consignee bears the loss and must debit the Commission Earned account to reduce the commission receivable. The consignor account is not affected as the consignee has assumed the credit risk.

Multiple choice

Directions: Out of the answer options given below, select the sentences that make coherent sense grammatically as well as thematically.

(A) Unlike a typical automobile loan, which requires a 15 to 20% down payment, the lease loan buyer is not required to make an initial deposit on the new vehicle. (B) The cameras of the Voyager II spacecraft detected six small, previously unseen moons circling Uranus which doubles to 12 the number of satellites now known as orbiting the planet. (C) He disapproves of your insisting that the rope of pearls was purposely misplaced. (D) Architects and stonemasons, huge palace and temple clusters were built by the Mayans without benefit of the wheel or animal transport.

  1. Only A

  2. Only B

  3. Only C

  4. B & D
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The modified clause in A should modify “lease loan” and not “the lease loan buyer”, since the modifier modifies “automobile loan”. In statement B, “detected” (past indefinite) should be followed by “doubled”. Also “now known to orbit” should replace “known as orbiting”. D also has an error of modifier. “Architects and stonemasons” should be followed, after comma, by “Mayans”.

Multiple choice

The cash discount allowed to a debtor should be credited to

  1. discount account

  2. customer's account

  3. sales account

  4. profit and loss account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When cash discount is allowed to a debtor, the debtor's personal account is CREDITED to reduce the amount they owe. The discount is a concession for early payment. The discount account is debited (recording the expense), and the customer's account is credited (reducing the receivable). This is part of recording the discount transaction.

Multiple choice

What are Treasury Bills?

  1. The main instruments of short-term borrowings by the Government which serve as a convenient gilt-edged security for the money market

  2. Bills issued by scheduled commercial banks to raise funds for more than 90 days

  3. Bills issued by treasuries to give short term funds to local self governments

  4. Bills prepared and presented to treasury for eventual payment
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Treasury Bills (T-Bills) are short-term debt instruments issued by the government to finance its operations. They mature in less than one year (typically 91, 182, or 364 days) and are sold at a discount to face value, serving as key money market instruments.

Multiple choice

What is the legal term for the following conditions?

a. An equal reduction of recovery of debts by all creditors when there are not enough funds or assets to pay the full amount. b. The removal of a problem which is against public or private policy or endangers others, including nuisances such as weeds that might catch fire on an otherwise empty lot.

  1. Discount

  2. Abatement

  3. Dividend

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

Abatement is an equal reduction of recovery of debts by all creditors when there are not enough funds or assets to pay the full amount and the removal of a problem which is against public or private policy or endangers others, including nuisances such as weeds that might catch fire on an otherwise empty lot.

Multiple choice

Bank loans granted to meet the day to day expenses of an organization are called working capital loans.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Working capital loans are specifically designed to finance a company's day-to-day operational expenses like inventory, payroll, and accounts payable. These are short-term loans that help businesses manage their cash flow cycle between payables and receivables. They are distinct from term loans used for long-term asset acquisition.

Multiple choice

A person who purchases debentures issued by a company is a lender to the company. An income fund invests in debentures issued by a company. A unit holder of this income fund

  1. is a lender to the company

  2. is a share holder in that company

  3. has no relationship to that company

  4. is a creditor to that company?
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The unit holder owns units in the mutual fund, not the underlying securities. The mutual fund is the legal owner of the debentures and has the creditor relationship with the company. The unit holder's relationship is with the mutual fund (trustee), not with the companies whose securities the fund holds. This separation of ownership is a key feature of mutual fund structure.

Multiple choice

There is no contractual guarantee for repayment of principal or interest to an investor in

  1. bank deposit

  2. debt fund

  3. secured debentures

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

Bank deposits have contractual guarantees from the bank (and deposit insurance in many countries). Secured debentures have collateral backing and specific repayment terms. Debt funds, however, invest in debt securities but pass the credit risk to investors - there is no guarantee of principal or interest repayment. If underlying bond issuers default, debt fund investors can suffer losses. Option B is the correct answer because debt funds lack contractual guarantees unlike bank deposits and secured debentures.

Multiple choice

The rate of interest paid by a company on debentures issued by it depends on

  1. the stock market situation

  2. SEBI guidelines

  3. the company's credit rating

  4. the amount of money being raised
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The interest rate on debentures depends primarily on the company's credit rating, which reflects its ability to repay the debt. Higher-rated companies can borrow at lower interest rates due to lower perceived risk, while lower-rated companies must offer higher rates to attract investors. SEBI guidelines govern disclosure but don't set rates, and market conditions or amount raised have secondary influence compared to credit risk.