LEGL 4400 Test 2
What is capital? - correct answer ✔resources needed and used to increase
payback in the future
sources of funding - correct answer ✔-retained earnings
-equity capital
-debt capital (bonds and loans)
promissory note - correct answer ✔a contract between the debtor and
creditor outlining the terms of the loan
default - correct answer ✔breach obligation of the promissory note
what effect does putting up collateral have on interest rates - correct answer
✔it lowers risk for creditors, therefore lowering the interest rate
how to attach the security interest to the collateral - correct answer ✔1.
creditor gives value
2. debtor has rights in the collateral
3. a security agreement (unless creditor possesses collateral)
What's required in a security interest? - correct answer ✔1. ID the parties
2. describe collateral w some level of precision
3. terms of the security interest
4. authenticated by debtor (usually signed)`
, Why secured transactions? - correct answer ✔-access to capital
-risk is a big issue
-collateral reduces lending risk
types of collateral - correct answer ✔-goods
-indispensable paper
-intangibles
downfall of attachment - correct answer ✔only effective against the debtor
and not third parties
perfection= attachment + ____ - correct answer ✔1. filing of financial
statement
2. possession of collateral by the secured party
3. automatic perfection
4. temporary perfection allowed under the code
5. secured party taking control of collateral
What guides and controls secured transactions? - correct answer ✔the UCC
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