Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

What is a Cash Collateralized Loan?

1. A loan secured by property equity

2. A loan extended with cash deposits accepted as collateral

3. A loan made exclusively to corporate clients

4. A loan that requires no collateral

The correct answer is: A loan extended with cash deposits accepted as collateral

A Cash Collateralized Loan is specifically defined as a loan that is secured by cash deposits provided by the borrower as collateral. This arrangement means that the lender holds the cash as security against the loan amount, reducing their risk by ensuring that there is a tangible, liquid asset that can be accessed in the event of default. The use of cash as collateral often allows borrowers to secure loans at more favorable terms, including lower interest rates, since the lender is protected by the cash asset. In this context, cash collateralized loans can be beneficial for both borrowers and lenders. Borrowers can leverage their cash reserves to access funding, while lenders enjoy reduced risk with a more secure form of collateral compared to loans secured by physical property or other assets. The other choices do not accurately reflect the nature of a Cash Collateralized Loan. Loans secured by property equity represent a different type of security and do not involve cash. Loans made exclusively to corporate clients address a specific type of borrower but are not inherently related to the nature of the collateral involved. Lastly, a loan that requires no collateral is distinctly opposite to what defines a cash collateralized loan, as the latter specifically involves a cash deposit to secure the loan.