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    Question

    When a borrower creates a charge over movable assets

    (present or future) in favor of a lender, but retains possession of those assets, such a security arrangement is termed as:
    A Hypothecation Correct Answer Incorrect Answer
    B Pledge Correct Answer Incorrect Answer
    C Mortgage Correct Answer Incorrect Answer
    D Lien Correct Answer Incorrect Answer
    E Assignment Correct Answer Incorrect Answer

    Solution

    • Hypothecation refers to a charge on movable property (like inventory, vehicles, or receivables) given as security for a loan, without transferring possession to the lender. The borrower continues to use the asset, but the lender has a legal right over it in case of default. • Pledge involves movable assets too, but here possession is transferred to the lender (e.g., gold loan). • Mortgage deals with immovable property such as land or buildings. • Lien gives the creditor the right to retain goods until dues are cleared. • Assignment involves transferring rights or receivables to another party. Thus, the correct term in this case is Hypothecation.

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