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PPB TYPES OF COLLATERALS SECURITIES
What is a collateral security in the context of bank lending?
Collateral security is an additional security offered by the borrower over and above the primary security to provide extra comfort to the lender in case of default.
What is the meaning of the term 'security' in the context of bank advances?
An asset pledged to protect the lender against loan default.
What is the difference between primary security and collateral security?
Primary security is the asset directly created out of the bank's finance (e.g., hypothecated stock), whereas collateral security is any additional asset pledged by the borrower or a third party to secure the loan.
What is the primary security in a bank loan?
Asset financed by the loan itself, e.g., machinery or stock.
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