An Interesting Quiz On Credit And Loans

A floating charge refers to a charge on the current assets of a company that are constantly changing. Unlike a fixed charge, which is attached to specific assets, a floating charge covers a fluctuating pool of assets, such as inventory or accounts receivable. This type of charge allows the company to continue operating and using these assets in the normal course of business until an event triggers the charge to become fixed, typically when the company defaults on its obligations.

Money lenders are an example of the informal loan sector because they provide loans outside of the traditional banking system. They often operate on a smaller scale and may not require extensive documentation or collateral. This sector is typically characterized by more flexible lending terms and higher interest rates compared to formal financial institutions like banks or cooperatives.

All of the options mentioned in the question - collateral, interest rate, and required documents - are terms commonly associated with credit. Collateral refers to an asset that is pledged as security for a loan, while interest rate is the cost of borrowing money. Required documents are the paperwork or documentation needed to apply for and secure credit. Therefore, all of these options are terms that are relevant and applicable to credit.

A demand loan is a type of loan that can be called or demanded for repayment by the bank at any time. Unlike other types of loans that have a fixed repayment schedule, a demand loan gives the bank the flexibility to request repayment whenever they choose. This type of loan is often used for short-term financing or by businesses that may need immediate access to funds.

In the case of a pledge, the possession of security is usually with the creditor. This means that the creditor holds the pledged asset or property as security until the debt is repaid. By having possession of the security, the creditor has a form of guarantee that they will be able to recover their funds if the debtor fails to fulfill their obligation.

Commercial banks can only provide credit to the government because the government is considered a reliable borrower with the ability to repay loans. Governments often borrow from banks to finance public projects, infrastructure development, and other expenditures. Commercial banks may be more willing to lend to the government due to the lower risk associated with government borrowing compared to private individuals or businesses. Therefore, the correct answer is government.

Commercial paper is a type of short-term, unsecured promissory note issued by large corporations to raise funds. It is typically used to meet short-term liquidity needs. On the other hand, accrued taxes, trade credit, and accrued wages are all examples of short-term, spontaneous credit. Accrued taxes refer to taxes that have been incurred but not yet paid, trade credit is the credit extended by suppliers to their customers, and accrued wages are wages that have been earned but not yet paid.

Hypothecation is the weakest method of charging security because it involves the borrower pledging an asset as collateral to the lender without transferring the ownership. In case of default, the lender has a claim on the asset, but it does not have direct ownership or possession. This makes it a weaker form of security compared to mortgage or pledge, where the lender has more control and rights over the pledged asset.

A chattel mortgage is a lien on specifically identified personal property that backs a loan. This means that if the borrower defaults on the loan, the lender has the right to take possession of the personal property that was used as collateral. A chattel mortgage is commonly used for financing the purchase of movable assets such as vehicles or equipment. Unlike a floating lien, which covers a broader range of assets, a chattel mortgage is specific to the identified personal property. A trust receipt and terminal warehouse receipt are not the correct terms for this type of lien.

The prime rate is the short-term interest rate charged by banks to their creditworthy customers. It is typically used as a benchmark for various loans and credit products. This rate is influenced by factors such as the federal funds rate, inflation, and the overall health of the economy.