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Test Your Knowledge of Loans

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Questions and Answers

What is the difference between fixed interest and floating interest loans?

Fixed interest loans have a constant interest rate while floating interest loans have a variable interest rate (correct)

Floating interest loans have a lower interest rate than fixed interest loans

Fixed interest loans have a lower interest rate than floating interest loans

Floating interest loans have a constant interest rate while fixed interest loans have a variable interest rate

What is the main concern with teaser loans?

They have a high interest rate initially

They have a low interest rate initially but it increases later (correct)

They are not available to subprime borrowers

They are only available to prime borrowers

What is the main difference between prime and subprime borrowers?

Prime borrowers have a history of defaulting on loans while subprime borrowers do not

Prime borrowers have a higher credit score than subprime borrowers

Prime borrowers have the capacity to repay loans while subprime borrowers do not (correct)

Prime borrowers have a lower income than subprime borrowers

What is overleveraging?

Borrowing too much money than one can pay back Signup and view all the answers

What is zombie lending?

When a weak bank keeps giving new loans to subprime or overleveraged borrowers Signup and view all the answers

What is the Twin Balance Sheet Syndrome (TBS)?

When a large corporate and a public sector bank have weak balance sheets Signup and view all the answers

What is the Interest Coverage Ratio (ICR)?

The ratio of a company's earnings before interest and taxes (EBIT) to its interest expenses Signup and view all the answers

Study Notes

There are two types of loans based on lending rates: fixed interest and floating interest.
Teaser loans have low interest rates initially, but the interest rate increases later.
Prime borrowers have the capacity to repay loans, while subprime borrowers do not.
Overleveraged borrowers have borrowed too much money than they can pay back.
Zombie lending is when a weak bank keeps giving new loans to subprime or overleveraged borrowers.
Teaser loans are a cause of economic concern because they are considered a type of subprime lending.
Non-performing assets (NPAs) are a problem in India due to overleveraged companies and policy paralysis.
Interest coverage ratio (ICR) is important in evaluating the risk of giving a loan to a firm.
Twin balance sheet syndrome (TBS) refers to the weak balance sheets of large corporates and public sector banks.
A firm with a higher ICR has a worse ability to service its debt.

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Description

Test your knowledge of lending rates, borrower types, and loan risks with our finance quiz. Learn about teaser loans, subprime borrowers, overleveraged companies, and more. See if you can identify the causes of economic concern and non-performing assets. Evaluate your understanding of interest coverage ratio and twin balance sheet syndrome. Sharpen your financial expertise and challenge yourself with our quiz.