1. Which of the following best defines a secured loan?
- A. A loan granted without any collateral
- B. A loan backed by an asset or collateral
- C. A loan given only to government employees
- D. A loan granted only for business purposes
A secured loan is backed by collateral, which the bank can claim if the borrower defaults.
2. Which of the following is an example of an unsecured loan?
- A. Loan against property
- B. Loan against fixed deposits
- C. Car loan
- D. Personal loan without collateral
Unsecured loans are granted without any collateral and are typically based on the borrower's creditworthiness.
3. Which factor primarily determines the effectiveness of a security for a bank?
- A. Borrower’s education level
- B. Bank’s branch location
- C. Marketability and realizable value of the collateral
- D. Borrower’s family background
The effectiveness of security depends on how easily it can be converted to cash and its realizable value in case of default.
4. Which of the following is a key characteristic of a secured loan?
- A. Lower interest rate due to reduced risk for the bank
- B. No repayment schedule
- C. Only granted to corporate borrowers
- D. Cannot be foreclosed by the bank
Secured loans typically have lower interest rates because the presence of collateral reduces the risk for the lender.
5. Which of the following is a disadvantage of unsecured loans for banks?
- A. High documentation requirements
- B. Slower disbursement process
- C. Higher credit risk due to absence of collateral
- D. Requirement of property valuation
Without collateral, the bank bears higher risk if the borrower defaults, making unsecured loans riskier.
6. Which of the following is considered a tangible security?
- A. Life insurance policy
- B. Land and buildings
- C. Book debts
- D. Shares
Tangible securities are physical assets that can be touched and valued, like land, buildings, machinery, or goods.
7. A mortgage on land is an example of which type of security?
- A. Hypothecation
- B. Pledge
- C. Mortgage
- D. Lien
A mortgage is a legal charge on immovable property (land or building) to secure repayment of a loan.
8. Goods deposited with a bank to secure a loan fall under which type of security?
- A. Pledge
- B. Hypothecation
- C. Mortgage
- D. Lien
In a pledge, goods or movable assets are physically delivered to the bank as collateral for the loan.
9. When the borrower retains possession of goods but the bank has a charge on them, it is called:
- A. Pledge
- B. Hypothecation
- C. Mortgage
- D. Lien
Hypothecation allows the borrower to retain possession of goods while giving the bank a charge over them as security.
10. Which of the following is considered a document of title to goods?
- A. Life insurance policy
- B. Fixed deposit receipt
- C. Share certificate
- D. Warehouse receipt
A warehouse receipt represents ownership of goods stored in a warehouse and acts as a document of title to those goods.
11. Which type of security allows banks to sell the collateral in case of default without going to court?
- A. Mortgage
- B. Hypothecation
- C. Pledge
- D. Lien
In a pledge, the bank has possession of goods and can sell them in case of default without court intervention.
12. A loan granted against a life insurance policy is generally considered:
- A. Secured loan
- B. Unsecured loan
- C. Hypothecated loan
- D. Pledged loan
A loan against a life insurance policy is secured because the policy itself acts as collateral, ensuring repayment in case of default.
13. When a borrower takes a loan against shares, the bank primarily considers:
- A. Borrower’s age
- B. Loan tenure
- C. Bank branch location
- D. Market value and liquidity of the shares
The bank evaluates the market value and liquidity of the pledged shares to determine the loan amount and risk.
14. Which of the following is a key advantage of advances against debentures for banks?
- A. No collateral is required
- B. Fixed income from debenture interest provides security
- C. Only long-term loans are allowed
- D. No need to verify creditworthiness
Advances against debentures are secured because the interest and principal of debentures provide a reliable source of repayment.
15. Which of the following documents is usually required when granting a loan against a life insurance policy?
- A. Income tax return only
- B. Bank passbook
- C. Original life insurance policy and assignment form
- D. Rent agreement
The original life insurance policy and an assignment form are required to legally pledge the policy as collateral for the loan.
16. A loan against shares or debentures is typically classified as:
- A. Unsecured personal loan
- B. Secured loan
- C. Overdraft only
- D. Hypothecated loan
The loan is secured as the shares or debentures act as collateral, which the bank can liquidate in case of default.
17. A loan against book debts is primarily secured by:
- A. Land and buildings
- B. Shares and debentures
- C. Outstanding receivables of the borrower
- D. Life insurance policy
A loan against book debts is secured by the borrower’s accounts receivable, which the bank can claim in case of default.
18. What is the primary advantage of granting a loan against term deposits?
- A. Low credit risk as the deposit acts as collateral
- B. No documentation is required
- C. Loan is always interest-free
- D. Bank cannot recover the loan if default occurs
The term deposit itself acts as collateral, reducing the bank’s risk and often allowing a lower interest rate on the loan.
19. In case of default on a loan against book debts, the bank primarily:
- A. Sells the borrower’s property immediately
- B. Collects the outstanding receivables to recover the loan
- C. Cancels the loan without recovery
- D. Converts the loan into an unsecured loan
The bank has the right to collect the receivables that were pledged as security to recover the outstanding loan.
20. Which of the following is true about loans against term deposits?
- A. They are always unsecured
- B. Interest rate is always higher than market rate
- C. Bank cannot charge any interest
- D. The term deposit acts as collateral for the loan
The borrower’s term deposit is pledged with the bank, making the loan secured and lowering the credit risk for the bank.
21. A loan granted against gold ornaments is typically:
- A. Unsecured loan
- B. Secured loan
- C. Hypothecated loan
- D. Lien
Gold ornaments are tangible assets pledged as collateral, making the loan secured and reducing the bank’s risk.
22. Loan against supply bills is primarily used in which type of banking?
- A. Retail banking
- B. Personal loans
- C. Trade finance or commercial banking
- D. Housing finance
Loans against supply bills are commonly used in trade finance, where the bank finances goods delivered or supplied to buyers.
23. In vehicle finance, which type of security is generally taken?
- A. Hypothecation of the vehicle
- B. Mortgage of land
- C. Pledge of gold
- D. Lien on term deposit
In vehicle loans, the vehicle itself is hypothecated, meaning the borrower retains possession but the bank has a charge until repayment.
24. Which factor primarily determines the loan amount against gold ornaments?
- A. Borrower’s credit history only
- B. Type of bank branch
- C. Loan tenure
- D. Weight and purity of the gold
The bank evaluates the weight and purity of gold to determine the loan amount and margin requirements.
25. Which of the following is true about loans against supply bills?
- A. They are always unsecured
- B. The goods supplied act as collateral for the loan
- C. The bank cannot recover the loan in case of default
- D. Only personal loans are given under this scheme
Supply bills represent goods delivered; banks finance such goods, using them as collateral to secure repayment.
