Question

Examine three attributes of a good security for loan guarantee. [10 marks]

Answer 1

Following are the 3 attributes of good security for loan guarantee:

1. Ability to ascertain

The value of the security to be given for loan should be easily ascertainable. Availability and transparency of the pricing is must in order to verify the value at periodic intervals.

2. High liquidity

The security should be easily convertible in form of cash. This is possible only when the security is freely traded in the market place.

3. Easy transferability

The security should be easily transferable to the lender’s name providing loan and such ownership should be legally transferable.