Future Business Leaders of America (FBLA) Business Law Practice Exam

What is meant by the term "secure transaction" in business law?

1. A transaction involving significant risk

2. A transaction that is guaranteed by collateral

3. A transaction that negates any liability

4. A transaction without written contracts

The correct answer is: A transaction that is guaranteed by collateral

The term "secure transaction" in business law specifically refers to a transaction that is backed by collateral. This means that the borrower pledges an asset to the lender as security for the loan or obligation. In the event that the borrower fails to fulfill their part of the agreement, the lender has the right to claim the collateral as compensation for the default. This concept is fundamental in lending agreements, as it reduces the risk for lenders and can provide borrowers with better terms, such as lower interest rates, because the presence of collateral offers a form of protection for the lender. The other options do not accurately reflect the meaning of a secure transaction. A transaction involving significant risk does not guarantee security; instead, it indicates uncertainty without collateral. A transaction that negates any liability suggests that one party is completely free from responsibility, which is not a characteristic of secured transactions. Lastly, a transaction without written contracts does not align with secure transactions, as written agreements are often essential to establishing the terms under which collateral is provided and the obligations of both parties.