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

A credit rating is

  1. used to rate the borrowers while giving advances

  2. used to work out performance of the employees

  3. used to calculate the number of excellent audit rated branches

  4. not used in any bank

  5. necessary before giving promotion to employees
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In banking and finance, a credit rating is an assessment of the creditworthiness of a borrower. It is used by banks and financial institutions to evaluate the risk of lending money to individuals or companies. The rating helps banks determine whether to approve a loan and what interest rate to charge based on the borrower's ability to repay.

Multiple choice

Reverse repo means

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

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

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

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

  5. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Multiple choice

'Sub-prime' refers to

  1. lending done by banks at rates below PLR

  2. funds raised by the banks at sub-Libor rates

  3. group of banks which are not rated as prime banks as per Banker's Almanac

  4. lending done by financing institutions including banks to customers not meeting with normally required credit appraisal standards
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Sub-prime lending refers to lending (including mortgages) made to borrowers who do not meet the standard creditworthiness criteria - typically lower credit scores, insufficient income documentation, or higher debt-to-income ratios. This sector was at the center of the 2008 financial crisis. Sub-prime does NOT refer to lending below PLR, sub-Libor rates, or non-prime bank classifications.

Multiple choice

What is Call Money?

  1. Money borrowed or lent for a day or over night.

  2. Money borrowed for more than one day but up to 3 days.

  3. Money borrowed for more than one day but up to 7 days.

  4. Money borrowed for more than one day but up to 14 days.

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

Call money refers to funds borrowed or lent for a very short period, typically overnight or for one day. It's a key component of the money market where banks and financial institutions borrow and lend to manage daily liquidity needs. The interest rate for such transactions is called the call money rate.

Multiple choice

Which of the following statements is/are correct?

a. The British passed the Limitation Law in 1857. b. It stated that the loan bonds signed between moneylenders and ryots would have validity for only one year. c. The moneylenders got around the law by forcing the ryots to sign a new bond every time and adding the original loan and the accumulated interest as the principal on which a new set of interest charges was calculated.

  1. a only

  2. b only

  3. c only

  4. a and b

  5. a, b and c
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

This is the correct answer as this statement is correct.

Multiple choice

A time barred debt can be claimed

  1. as a set off

  2. as a counter claim

  3. as a fresh suit

  4. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Option (1) is incorrect: A time barred debt cannot be claimed as a set off. Option (2) is incorrect: A time barred debt cannot be claimed as a counter claim. Option (3) is incorrect: A time barred debt cannot be claimed as a fresh suit. Option (4) is correct: A time barred debt can never claimed as a set off, a counter claim and a fresh suit.

Multiple choice

Universal donee is

  1. not liable for any debt or liability

  2. personally liable for all debts and liabilities existing at the time of gift

  3. only liable for half of the liabilities

  4. only liable for one-third of liabilities
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Section 128 of the Transfer of Property Act, 1882, where a gift consists of the donour's whole property, the donee is personally liable for all debts due by and liabilities of the donour at the time of the gift to the extent of the property comprised therein.

Multiple choice

Debentures are

  1. debt securities

  2. equity securities

  3. Both (1) and (2)

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

(3) Debentures are debt securities and equity securities both.

Multiple choice

Which of the following statements is true?

  1. Creditors can draw a bill on debtors

  2. Debtors can draw a bill on creditors

  3. Bank will draw a bill on customer at the time of overdraft

  4. One can draw the bill on another under any circumstances
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

 Only a creditor can draw a bill of exchange on its debtor. Going by the definition of Bill of Exchange, a person promises to pay money after some specific time and to make the same valid, it must be accepted by the debtor.

Multiple choice

A Hindu widow borrowed money from a lender for the purpose of filing a suit for maintenance. The lender advanced money at 100 percent rate of interest. The act of the money lender is induced by

  1. coercion

  2. undue influence

  3. fraud

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

This is a classic case of undue influence under Section 16 of the Indian Contract Act. The money lender is in a position to dominate the will of the borrower - a Hindu widow in distress, needing funds for a maintenance suit. Charging 100% interest in such a situation is clearly unconscionable and exploitative of her vulnerable position.