11 C

MCQs SECURITIES, CHARGES , DP , MARGIN AND INSURANCE

1. A firm, trading in goods and services obtains an insurance policy for various risks
for Rs. 15 lac whereas they maintain average inventory in the range of Rs. 20 lac.
Unfortunately a fire takes place and the goods worth Rs. 4 lac are destroyed. What
will be amount of insurance claim the party will be able to obtain from the
insurance company in case their claim is accepted:
a. Due to under insurance, no claim will be entertained
b. The amount of claim will be restricted to 50% of the amount of loss.
c. Since the loss is 1/4th of the value stocks, the insurance cover will be 25%
d. The claim for loss will be in the ratio of insurance amount as percentage
of the value of stocks (i.e.75%)
e. B or c, whichever is lower
2. A bank branch while sanctioning a loan for purchase of a motor vehicle, obtains
insurance policy for various kinds of risks in:
a. Banks name with bank clause
b. Borrowers name with bank clause
c. Joint name of bank and borrower
d. An open policy
e. A policy with all the above features
3. A firm had stocks of goods worth Rs. 10 lac at its godown, which were insured for
Rs. 5 lac only. The goods worth Rs. 4 lac were destroyed in fire while in process at
another godown. What is the amount of claim the firm would get in case the
insurance company finds that the stocks of Rs. 4 lac were destroyed:
a. Rs.4 lac
b. Rs.2 lac
c. Rs.2.5 lac
d. No claim will be eligible
e. Rs.10 lac
4. A partnership firm has been allowed a cash credit pledge limit of Rs.5 lac for which
it maintains stocks of Rs.8 lac but obtains insurance for Rs.6 lac. A fire has occurred
due to which stock worth Rs.1 lac have been destroyed. What is the amount of
claim which the insurance company would settle for this loss:
a. Rs.1 lac
b. Rs.80000
c. Rs.75000
d. Rs.50000
e. Rs.25000

5. A firm has been sanctioned a cash credit limit of Rs.4 lac. It submits stock statement
for stock value of Rs.6 lac. The margin on the security is 25%. What is the amount
of drawing power in the account?
a. Rs.6 lac
b. Rs.4.50 lac
c. Rs.4 lac
d. Rs.3 lac
e. Rs.3.50 lac
6. Your branch has sanctioned a cash credit limit of Rs.12 lac to a trading firm with 40
% margin against the goods in trade. To avail this limit fully, what should be
amount of stocks with the party:
a. Rs.20 lac
b. Rs.18 lac
c. Rs.16 lac
d. Rs.14 lac
e. Rs.12 lac
7. When banks sanction credit facilities, they insist on margin from the borrowers also,
which means:
a: Market value of security less amount of loan
b: Contribution of the borrower from long term sources in the business
c: Current assets minus current liabilities
d: a to c
e: b & c
8. Your branch has sanctioned working capital limit of Rs.9 lac to a partnership firm
which submits stock report with stocks worth Rs.28 lac and sundry creditors of
Rs.18 lac. The margin in the account is only 20%, the unit being an SSI unit. What
is the maximum amount up to which the limit can be allowed to be availed by the
party?
a. Rs.6 lac
b. Rs.8 lac
c. Rs.9 lac
d. Rs.4.60 lac
e. None of the above
9. Why a banker should keep margin:
a. There can be fluctuation in the price of security
b. Due to application of interest, the debt pressure on the borrower goes on
increasing
c. With the passage of time value of security may deplete.
d. All the above

e. None of the above

10. Margin maintained by the bank on the securities depends on:
a. The price fluctuations
b. Credit reputation of the party
c. RBI/banks own guidelines for certain securities
d. All of the above
DIFFERENT KINDS OF CHARGES ON SECURITIES
PLEDGE & HYPOTHECATION
1. The pledge is defined u/s of Indian Contract Act:
a. 172
b. 272
c. 171
d. 372
e. 174
2. In what respect, a charge hypothecation is different from pledge of goods:
a. In possession of bank but ownership with the borrower
b. Both the possession and ownership rest with borrower
c. Neither the possession nor the ownership is with the bank
d. Both (b) and (c) above
e. There is no difference and both are similar
3. A charge of pledge is not required to be registered under section 125 of companies Act.
But registration of charge with ROC for the following is required:
a. Hypothecation
b. Assignment,
c. Mortgage
d. All of the above
e. None of the above
4. Your branch has allowed an advance against stocks but the stocks are lying with a 3rd
party warehouse. On the direction for the borrower the said 3rd party has acknowledged
that the stocks shall be kept on behalf of the bank. Such an advances is called:
a. Unsecured advance
b. Cash credit hypothecation advance
c. Cash credit lock & key or pledge
d. Any of the above
e. advances against warehouse receipts
5. In case of hypothecation, the borrower can:

a. Take goods out of godown and use them

b. Keep new goods inside the godown in place of the old once
c. Sell the goods hypothecated and replenish the stocks
d. Can avail bank finance on the security of these goods
e. All of the above
6. In case of pledge, there are two parties:
a. Bailor and bailee
b. Bailor and possessor
c. Bailee and manufacturer
d. Pledger and pledgee or pawner and pawnee
e. A and b
7. The person who is transferring the possession of goods for some specific purpose as
per Indian Contract Act is called:
a. Transferor
b. Bailor
c. Bailee
d. Pledger
e. Pledge
8. In an agreement of hypothecation, the borrower undertakes to:
a. Hand over the possession of the security when asked by the bank
b. The bank according to its will can convert hypothecation into pledge at any time by
giving notice
c. Hypothecated goods are with the borrower as a trustee for the bank
d. A and b
e. a to c
9. Through a charge on assets:
a. The banker becomes the owner of the security
b. The bank gets certain rights in the security
c. Security is transferred in favour of the bank
d. Rights can be enforced without court intervention
e. None of the above
10. You grant a loan against the security of movable goods relating to a firm.
Which kind of charge on goods can be created?
a. Pledging the goods
b. Hypothecation the goods
c. Assignment

d. A or b
e. A to c
11. Which of the following definition is most appropriate in the case of the charge called
pledge:
a. A loan against goods by keeping in a godown of lender
b. A limit for working capital by offering them under lock and key
c. Bailment of goods with an intention to create security for a debt
d. Keeping goods inside godown of borrower under lock and key of the lender
e. All the above
12. The charge on movable goods to be created would be a charge known as:
a. Lien
b. Assignment
c. Mortgage
d. Hypothecation
e. Set off
13. After the conversion of hypothecation into pledge, the bank will have the same right
as that of:
a. Pledgee
b. Mortgagee
c. Pledger
d. Hypothecatee
e. Hypothecator
14. When a bank takes into possession, any security for a particular loan, then:
a. It gets a particular lien on such security
b. It gets a general lien on such security
c. It gets a negative lien on such security
d. All the above
e. B and c only
15. Pledge means:
a. A loan against goods
b. A limit for working capital
c. Bailment of goods with an intention to create security for a debt
d. Keeping goods inside godown
16. According to provisions of section 148 of Indian Contract Act, bailment means:
a. Transfer of possession of goods from one person to another for any specific
purpose

b. Transfer of possession under a specific contract that after the accomplishment of

the purpose the possession of goods would be retransferred
c. Both the above
d. None of the above
17. The person to whom the possession of goods for a specific purpose is transferred is
called:
a. Transferee
b. Bailee
c. Beneficiary
d. None of the above
18. Hypothecation is defined in:
a. Indian Contract Act 1872
b. Transfer of Property Act
c. Negotiable Instruments act
d. Securitization & Reconstruction of Financial assets and Enforcement of
Security Interest Act 2002
19. A borrower keeps the goods with a third party and instructs them to hold the goods for
and on behalf of the creditor:
a. The 3rd party will not agree
b. When the third party agrees to hold goods for borrowers creditors, it will be
treated as constructive pledge
c. This type of pledge will not be valid
d. None of the above
20. A trust receipt is:
a. An instrument in writing under which either goods or documents of title to goods
are handed over to the borrower in a trust
b. An instrument under which the borrower keeps the possession of goods or
document of title to goods for and on behalf of the creditor in a trust
c. An instrument in writing under which pledge is effective even after the delivery of
the goods
d. All the above
21. Who can create a valid pledge over the goods:
a. The owner himself
b. Co-owners with consent of other co-owners
c. Joint owners, jointly
d. Any of the above
22. A mercantile agent has got the possession of goods under his ordinary course of
business of an agent. He pledges these goods to the bank:
a. Pledge is valid

b. Pledge is invalid
c. Pledge is valid if banker does not know about agents ownership
d. None of the above
23. As a pledgee, the bank has got the following rights, as per Indian Contract act:
a. U/s 173 to keep the goods in possession for the payment of principal, interest and
maintenance expenses
b. U/s 174, to retain possession of goods for the loan and not for any other loan in
general if there is no contract to the contrary
c. If a pledge incurs extraordinary expenses for the protection of the goods, he is
entitled to recover such expenses
d. All the above
24. When the borrower needs continuous use of the goods charged to the bank, he should:
a. Hypothecate such goods to bank
b. Pledge such goods to bank
c. Mortgage such goods to bank
d. None of the above
MORTGAGE/ ASSIGNMENT
1. The mortgage has been defined Under Section . of Transfer of Property Act:
a. 57
b. 58
c. 59
d. 60
e. None of the above
2. The amount of loan secured by mortgage of property is called
a. Principal amount
b. Mortgage money
c. Borrowed money
d. Hot money
e. None of the above
3. Can the same property be equitably mortgaged to two banks:
a.Yes, with the consent of the first mortgagee
b. No
c.Yes when first one keeps the deeds as agent for the second
d. (a) and (b) above
e.None of the above

4. A loan secured by mortgage of immovable property is repayable on demand. For a

personal decree against the borrower, the limitation period will be:
a. Three years from date of execution of mortgage deed
b. 12 years
c. 3 years
d. 12 years from date of demand made
e. None of the above
5. Which of he following mortgages is not required to be registered with Registrar of
Assurances?
a. Equitable mortgage
b. Simple mortgage
c. English Mortgage
d. None of the above
e. All of the above
6. You are in the process of getting an equitable mortgage created. What among the
following precautions would be taken:
a. An instrument in writing is necessary
b. The mortgagor will have to put his statement in the records of the mortgagee
when depositing title deeds.
c. The mortgagor should not sign any document nor submit any memo in
writing at the time /day of creation of mortgage
d. Mortgage will be registered with registrar of Assurances.
e. Mortgage can be created at any place for any property
7. Generally which charge is created on the changing book debts by banks:
a. Pledge
b. Assignment
c. Hypothecation
d. Mortgage
e. None of the above
8. SBI branch in Chandigarh decides to sanction working capital limits to a Public
Limited Company and proposes to obtain equitable mortgage of immovable property of
the company located in Jaipur. The registration of this equitable mortgage of property
will be required to be done:
a. With the Registrar of companies having jurisdiction over Chandigarg
b. With the registrar of companies having jurisdiction over Jaipur if its registered
office is in Jaipur
c. With both the registrars
d. With any of the registrars

e. None of the above

9. On which among the following, the charge of assignment cannot be created
a. Land and building
b. Plant and machinery
c. Stocks in trade
d. A and b above
e. All the above
10. Your branch grants a loan of Rs.6 lac for renovation of house to Mr. Virender Kumar.
After initial payment of few instalments he stops paying the installments of the loan due
to which the loan became sub-standard. Bank, which has mortgage as security, wants that
the borrower should not be able to get the mortgage released. Which of the following is
the possible action to be taken by the bank?
a. Use of right of appropriation
b. Exercise the right of subrogation
c. Exercise the right of set-off
d. Use the right of redemption
e. Use the right of foreclosure
11. Which among the following process will be followed for creating a legal mortgage?
a. By deposit is of title deed
b. By taking possession of the property
c. By registration of mortgage deed duly executed, with appropriate authority
d. By any of the above
e. By all the above
12. The instrument through which an interest in an immovable property is transferred is
called
a. Mortgage deed
b. Mortgage transfer
c. Mortgage agreement
d. Mortgage-cum-loan deed
e. Any of the above
13. For creation of equitable mortgage, when the owners of the property are more than
one, then to deposit the title deed:
a. They must authorize any one to them by giving power of attorney in his
favour in writing to do this act
b. All the major owners should come to the bank
c. Their manager should come to the bank
d. A or b
e. A to c

14. A loan extended by your branch is not paid by the borrower which is secured by a
mortgage. What should you, as a mortgagee, do:
a. Approach the court to obtain permission to sell property
b. File a suit against the mortgagor without selling the mortgaged property
c. Sell the property by giving a reasonable notice
d. Sell the property in consultation with the party
e. a and b
15. If a company has to create an equitable mortgage in favour of the bank for security of
a loan, who will be competent to deposit the original title documents of the property on
behalf of the company:
a. Managing Director
b. Executive director
c. Manager
d. An authorized official, as per resolution passed by the Board of the Company
e. Any of the above
16. A legal assignment must be:
a. In writing
b. Signed by the assignor
c. Both the above
d. None of the above
17. Mumbai branch of the United Bank proposes to sanction working capital limits to a
public limited company. The collateral security in the account is equitable mortgage of
the immovable property of the director of a company located in Ahmedabad. Where
should the company get the charge registered for the mortgage with Registrar of
assurances?
a. With Registrar of Assurances in Ahmedabad
b. With Registrar of Companies in Ahmedabad
c. With Registrar of Companies in Mumbai
d. With all the above authorities
e. No charge is required to be registered.
18. One property has been mortgaged equitably and by some other type of mortgage as
well. Which of the mortgages will have a priority:
a. The mortgage which has been created earlier
b. Both the mortgages will be treated on the same footings
c. Legal mortgage a
d. Equitable mortgage, if created
e. None of the above

19. An equitable mortgage:

a. Attracts stamp duty and registration charges in all states
b. Does not attract stamp duty and registration charges in many states
c. Attracts stamp duty at reduced rates
d. None of the above
20. A search report from a legal counsel is insisted upon atleast for:
a. 3 years
b. 10 years
c. 12 years
d. 30 years
21. When a debt, in the form of actionable claim is offered as security, which charge
should be created:
a. Assignment
b. Hypothecation
c. Pledge
d. None of the above
22. The charge of assignment is governed by the provisions of:
a. Indian Contract Act
b. Negotiable Instruments Act
c. Transfer of Property Act
d. None of the above