Banking Financial Awareness · 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

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.

Multiple choice

NPA is a classification used by financial institutions. It refers to loans that are in jeopardy of default. With effect from March 31, 2004, a non-performing asset (NPA) is deemed to be a loan or an advance where the account remains ‘out of order’ for a period of more than ____, in respect of an overdraft/cash credit.

  1. 30 days

  2. 45 days

  3. 60 days

  4. 90 days
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

NPA is a classification used by financial institutions. It refers to loans that are in jeopardy of default. With effect from March 31, 2004, a non-performing asset (NPA) is deemed to be a loan or an advance where the account remains ‘out of order’ for a period of more than 90 days, in respect of an overdraft/cash credit.

Multiple choice

What is the definition of repo rate in the banking sector?

  1. The rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds

  2. The amount of funds that the banks have to keep with the central bank

  3. The rate at which the central bank borrows money from commercial banks

  4. The amount that the commercial banks are required to maintain in the form of gold or govt. approved securities before providing credit to the customers
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Repo rate (repurchase rate) is the rate at which the central bank (RBI in India) lends money to commercial banks against government securities. It is a key monetary policy tool used to control inflation and liquidity. When banks need funds for short-term requirements, they borrow from the central bank at this rate by selling securities with an agreement to repurchase them at a predetermined price and date.

Multiple choice

What does the term ‘leverage’ mean in the banking sector?

  1. Increase in capital

  2. Ratio of assets to capital

  3. Decrease in capital

  4. An asset, including a leased asset
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In banking, leverage refers to the ratio of a bank's total assets to its capital (equity). It measures how much the bank has borrowed relative to what it owns and indicates the level of risk the bank is taking. A higher leverage ratio means more assets per unit of capital, indicating greater risk-taking. This is a key metric in bank regulation under Basel norms. Leverage does not mean increase or decrease in capital itself, nor does it refer to a leased asset.

Multiple choice

A Hindu widow borrowed money from a lender for the purpose of filling 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

Undue influence (Section 16 of Indian Contract Act) occurs when one party dominates the will of another through a relationship of trust and confidence. A money lender lending at 100% interest to a vulnerable widow for a basic need (maintenance suit) exploits this fiduciary relationship. The unconscionable interest rate and the widow's disadvantaged position clearly show the lender abused their position of influence over her.

Multiple choice

For which of the following loan documents can floating interest rate be made applicable, which does not have a fixed interest rate during its entire life span?

  1. Loan

  2. A bond

  3. Mortgage funds

  4. Deposits

  5. All of the above
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Floating interest rates can be applied to all listed instruments - loans, bonds, mortgage funds, and deposits. Unlike fixed rates that remain constant, floating rates are reset periodically based on a benchmark rate plus a spread, allowing them to adjust with market conditions throughout the instrument's life.

Multiple choice

In case of dishonour of bills receivable what effect will it have on the current ratio?

  1. Decrease in current asset and increse in current liability with the same amount

  2. Nil effect

  3. Increase in current assets and increase in current liability with the same amount

  4. Decrease in current assets and decrease in current liability

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

There will be no effect on current assets and current liabilities. So the effect will be nil.