Question
Download Solution PDFWith which of the following functions of a bank would you associate the term ‘collateral’?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is Granting of loans and Services.
Key Points
- Collateral
- The term collateral refers to an asset that a lender accepts as security for a loan.
- Collateral may take the form of real estate or other kinds of assets, depending on the purpose of the loan. Hence, Option 4 is correct.
- The collateral acts as a form of protection for the lender.
- That is, if the borrower defaults on their loan payments, the lender can seize the collateral and sell it to recoup some or all of its losses.
- Collateral is an item of value used to secure a loan.
- Collateral minimizes the risk for lenders.
- Mortgages and car loans are two types of collateralized loans.
- Other personal assets, such as a savings or investment account, can be used to secure a collateralized personal loan.
Last updated on May 28, 2025
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