Multiple Choice
Which of the following is an example of an individual financial conflict of interest (COI)?
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1. Introduction to Accounting
Types of Accounting
Multiple Choice
Which type of loan requires the borrower to put up collateral for the loan?
A
Unsecured loans
B
Revolving credit
C
Secured loans
D
Installment loans
Verified step by step guidance1
Understand the concept of collateral: Collateral is an asset that a borrower offers to a lender as security for a loan. If the borrower fails to repay the loan, the lender can seize the collateral to recover their losses.
Differentiate between secured and unsecured loans: Secured loans require collateral, while unsecured loans do not. Examples of secured loans include mortgages and auto loans, where the house or car serves as collateral.
Analyze the options provided: Unsecured loans do not require collateral, revolving credit is typically unsecured, and installment loans can be either secured or unsecured depending on the agreement.
Identify the correct type of loan: Secured loans explicitly require the borrower to put up collateral as a condition for obtaining the loan.
Conclude that the correct answer is 'Secured loans' based on the definition and characteristics of collateral-backed loans.
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