What is cash, or near cash assets, pledged to secure credit or an obligation?

• A. Collateral
• B. Security interest
• C. Pledge
• D. Chattel

Answer: (A)

Collateral is the asset pledged to secure a loan or other obligation. Cash or near-cash assets—like money held in a reserve account, Treasury bills, or other highly liquid instruments—are especially effective as collateral because they are easy to value and quickly liquidated if the borrower defaults. This reduces the lender’s risk by providing a readily accessible source of repayment.

A security interest is the lender’s legal claim on the collateral, arising from a security agreement, and is separate from the asset itself. A pledge is a method of creating collateral where the borrower delivers possession of the asset to the lender. Chattel refers to movable personal property in general, not the specific concept of securing a debt. Putting cash or near-cash assets up as security is precisely using collateral.