Question map
Not attempted Correct Incorrect ★ Bookmarked
Loading…
Q61 (CDS-I/2021) Economy › Money, Banking & Inflation › Banking operations services Answer Verified

The asset or assets that a borrower pledges in order to guarantee repayment of a loan is called as

Result
Your answer: —  Â·  Correct: B
Explanation

Collateral is defined as an asset owned by a borrower—such as land, buildings, vehicles, or bank deposits—that is pledged to a lender as a guarantee until a loan is fully repaid [1]. It serves as a security interest, providing the lender with a legal right to seize and sell the asset to recoup the loan amount if the borrower defaults [1]. This mechanism transforms an unsecured debt into a secured loan, where the asset acts as a backup source of repayment [2]. Common examples include property titles and livestock [1]. While terms like 'security' are broader, 'collateral' specifically refers to the pledged asset of value used to safeguard the transaction [1]. In the banking system, collateral, interest rates, and documentation together form the 'terms of credit'.

Sources

  1. [1] Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 3: MONEY AND CREDIT > TERMS OF CREDIT > p. 43
  2. [2] https://www.investopedia.com/terms/c/collateral.asp
How others answered
Each bar shows the % of students who chose that option. Green bar = correct answer, blue outline = your choice.
Community Performance
Out of everyone who attempted this question.
67%
got it right
✓ Thank you! We'll review this.

SIMILAR QUESTIONS

IAS · 2024 · Q40 Relevance score: -3.26

With reference to the Indian economy, "Collateral Borrowing and Lending Obligations" are the instruments of :

CAPF · 2022 · Q107 Relevance score: -4.47

A non-banking financial company cannot

CDS-II · 2022 · Q67 Relevance score: -5.45

Which one of the following statements about a borrower from a Microfinance Company is not correct?

IAS · 2025 · Q10 Relevance score: -5.53

Consider the following statements : I. Capital receipts create a liability or cause a reduction in the assets of the Government. II. Borrowings and disinvestment are capital receipts. III. Interest received on loans creates a liability of the Government. Which of the statements given above are correct?