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

Which of the following is a characteristic of a cash collateralized loan?

1. It is only available to corporations

2. It requires collateral in the form of property

3. It can involve cash deposits from different jurisdictions

4. It is an unsecured loan

The correct answer is: It can involve cash deposits from different jurisdictions

A cash collateralized loan is characterized by the requirement for cash collateral, which may include cash deposits that can come from various jurisdictions. This feature allows borrowers to secure a loan with cash, rather than physical assets or property, making it somewhat unique in the landscape of lending. By utilizing cash deposits for collateral, lenders mitigate their risk while offering borrowers access to funds, often with more favorable terms than unsecured loans. The ability for collateral to involve cash deposits from different jurisdictions is particularly relevant in a globalized economy where cross-border banking and finance are common. This facilitates international transactions and allows borrowers from various locations to utilize their cash reserves effectively as collateral. The other options do not accurately reflect the nature of cash collateralized loans. For example, cash collateralized loans are not restricted solely to corporations, as individual borrowers can also utilize this type of financing; they do not require collateral in the form of property since cash is the collateral; and they are not unsecured loans, which, by definition, do not require any collateral at all.