n NISM Certifications
XV NISM Series XV
Medium

Exchanging debt for equity, extending payment terms, or reducing debt is called ______. Loan restructuring is a mechanism for companies in financial distress to modify debt terms to make repayment manageable and avoid default.

Practice question from NISM XV Mock Test 3 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    Loan financing

  2. Loan restructuring

    Correct answer

  3. C

    Share swap

  4. D

    Mergers

Why this is the answer

Loan restructuring allows financially distressed companies to renegotiate terms, reduce principal, swap debt for equity, or lower interest rates to make repayment feasible while avoiding insolvency.

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