Question : Questions : Debentures and Financial Instruments
Statement 1: Debentures are secured by specific assets of the company.
Statement 2: Debentures are always unsecured and carry higher risk.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statements 1 and 2 are true.
Option 4: Both statements 1 and 2 are false.
Correct Answer:
Statement 1 is true, and statement 2 is false.
Solution : The correct answer is (a) Statement 1 is true, and statement 2 is false.
Statement 1 is true. Debentures can be secured or unsecured. Secured debentures are backed by specific assets of the company, providing a level of security to debenture holders. If the company defaults, the debenture holders have a claim on the specified assets.
Statement 2 is false. Debentures can be either secured or unsecured. Secured debentures are backed by specific assets, reducing the risk for debenture holders compared to unsecured debentures. Unsecured debentures, on the other hand, lack specific asset backing and carry a higher risk for debenture holders.
