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

Which of the following is a type of mortgage that allows the borrower to make additional payments without penalty?

  1. Adjustable-rate mortgage (ARM)

  2. Fixed-rate mortgage (FRM)

  3. Interest-only mortgage (IO)

  4. Prepayment penalty mortgage
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A prepayment penalty mortgage allows the borrower to make additional payments towards the principal balance without incurring any penalties. This flexibility can help borrowers reduce the overall cost of the loan and pay it off sooner.

Multiple choice

Which of the following is a type of mortgage that adjusts the interest rate periodically based on a predetermined index?

  1. Adjustable-rate mortgage (ARM)

  2. Fixed-rate mortgage (FRM)

  3. Interest-only mortgage (IO)

  4. Balloon mortgage
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

An adjustable-rate mortgage (ARM) has an interest rate that can change periodically, typically based on a predetermined index, such as the prime rate. The interest rate adjustments can result in changes to the monthly mortgage payments.

Multiple choice

What is the term used to describe the process of repaying a mortgage loan in regular installments?

  1. Amortization

  2. Escrow

  3. Prepayment

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

Amortization refers to the process of gradually repaying a loan through regular installments that include both principal and interest. Each payment reduces the outstanding loan balance, and the loan is fully repaid at the end of the amortization period.

Multiple choice

Which of the following is a type of mortgage that allows the borrower to finance the purchase of a property without making a down payment?

  1. Adjustable-rate mortgage (ARM)

  2. Fixed-rate mortgage (FRM)

  3. Zero-down mortgage

  4. Balloon mortgage
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A zero-down mortgage is a type of mortgage that allows the borrower to purchase a property without making a down payment. This type of mortgage typically requires the borrower to have a strong credit score and meet specific lender requirements.

Multiple choice

What is the term used to describe the process of replacing an existing mortgage with a new one, typically with different terms and conditions?

  1. Amortization

  2. Escrow

  3. Prepayment

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

Refinancing involves replacing an existing mortgage with a new one, typically with different terms and conditions, such as a lower interest rate, a shorter loan term, or a different type of mortgage. Refinancing can help borrowers save money on interest payments or improve their overall financial situation.

Multiple choice

Which of the following is a type of mortgage that requires the borrower to make a large down payment, typically 20% or more of the property's purchase price?

  1. Adjustable-rate mortgage (ARM)

  2. Fixed-rate mortgage (FRM)

  3. Conventional mortgage

  4. Jumbo mortgage
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A conventional mortgage is a type of mortgage that is not insured or guaranteed by a government agency. Conventional mortgages typically require a down payment of at least 20% of the property's purchase price and have stricter credit and income requirements compared to government-backed loans.

Multiple choice

Which of the following is NOT a type of public debt?

  1. Treasury bonds

  2. Municipal bonds

  3. Corporate bonds

  4. Treasury bills
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Corporate bonds are issued by private companies, while Treasury bonds, Municipal bonds, and Treasury bills are all types of public debt.

Multiple choice

Which of the following is NOT a method of managing public debt?

  1. Debt restructuring

  2. Debt refinancing

  3. Debt cancellation

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

Debt cancellation is not a method of managing public debt, as it involves forgiving the debt rather than managing it.

Multiple choice

What is the relationship between sovereign ratings and CDS spreads?

  1. Higher sovereign ratings lead to wider CDS spreads

  2. Lower sovereign ratings lead to narrower CDS spreads

  3. There is no correlation between sovereign ratings and CDS spreads

  4. The relationship varies depending on market conditions
Reveal answer Fill a bubble to check yourself
Correct answer
Explanation

Generally, lower sovereign ratings indicate a higher risk of default, which leads to wider CDS spreads.

Multiple choice

What is the impact of a sovereign debt default on CDS contracts?

  1. CDS contracts become worthless

  2. CDS contracts are triggered and pay out to the buyer

  3. CDS contracts are renegotiated

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

In the event of a sovereign debt default, CDS contracts are triggered, and the buyer receives a payout from the seller.

Multiple choice

What is the term used to describe the situation when a country is unable to meet its debt obligations?

  1. Sovereign default

  2. Bankruptcy

  3. Insolvency

  4. Financial crisis
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Sovereign default is the term used to describe the situation when a country is unable to meet its debt obligations.

Multiple choice

What is the default rate on student loans for Black borrowers?

  1. 10%

  2. 15%

  3. 20%

  4. 25%
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The default rate on student loans for Black borrowers is 20%, compared to 13% for White borrowers.

Multiple choice

What is the term for the interest rate that the central bank charges banks for loans?

  1. Open market operations

  2. Reserve requirements

  3. Discount rate

  4. Quantitative easing
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The discount rate is the interest rate that the central bank charges banks for loans.

Multiple choice

What is the best way to manage your debt?

  1. Make a budget and stick to it

  2. Pay off your debts with the highest interest rates first

  3. Consider debt consolidation

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

The best way to manage your debt is to make a budget and stick to it, pay off your debts with the highest interest rates first, and consider debt consolidation.

Multiple choice

What is the Federal Reserve's discount rate?

  1. The interest rate that the Federal Reserve charges banks for loans

  2. The interest rate that banks charge their customers for loans

  3. The interest rate that the Federal Reserve pays on its deposits

  4. The interest rate that banks pay on their deposits
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The Federal Reserve's discount rate is the interest rate that the Federal Reserve charges banks for loans.