What is collateral?

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Asset

Deposits

None of them

All the above

answer is A.

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Detailed Solution

An asset is collateral. Security is an asset that a lender accepts as collateral for a loan.
Depending on the purpose of the loan, collateral may take the shape of real estate or other assets. The collateral acts as a form of security for the lender. In other words, if the borrower fails to make a loan payment, the lender may sell the collateral to recoup some or all of its losses. A valuable asset is used as collateral to secure a loan. To recover its losses, the lender has the right to sell the collateral if a borrower defaults on the loan. Two examples of collateralized loans are mortgages and auto loans.

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