Question

Which of the following best describes hypothecation?

a) Pledging an asset as collateral without transfer of ownership.
b) Liquidating an investment for cash.
c) Issuing bonds to raise capital.
d) Transferring ownership of property as security.

Answer 1

Hypothecation is the act of pledging an asset as collateral without transfer of ownership. Correct option is a.

Step-by-step explanation:

Hypothecation is the act of pledging an asset as collateral without transfer of ownership. When a person or company borrows money, they may use an asset such as property or equipment as collateral to secure the loan.

This means that if they fail to repay the loan, the lender has the right to seize and sell the asset to recover the amount owed.