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      Question

      'Haircut' in the context of collateral valuation refers

      to:ย 
      A The fee charged for valuation. Correct Answer Incorrect Answer
      B The percentage reduction applied to the market value of an asset to account for volatility. Correct Answer Incorrect Answer
      C The tax deducted at source on interest. Correct Answer Incorrect Answer
      D The interest rate discount for good borrowers. Correct Answer Incorrect Answer
      E The process of selling the collateral. Correct Answer Incorrect Answer

      Solution

      If a house is worth โ‚น1 Crore and the bank applies a 20% haircut, they will only consider โ‚น80 Lakh for the purpose of lending.

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