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Q.

The bank requires an asset that acts as a security before providing loans. This asset is termed as ____


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Detailed Solution

The asset required by banks before giving loans is termed collateral. Collateral gives the bank a guarantee and minimises its risk. If the borrower fails to repay the loan, the bank can seize and sell its collateral to recover the loan amount. Collateral can be any asset like a house, a car, bank deposit, or bonds. For example, in the case of a home loan, the collateral is the house purchased.
 
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The bank requires an asset that acts as a security before providing loans. This asset is termed as ____