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 some security to the debenture holders. In the event of default, these assets can be sold to repay the debenture holders.
Statement 2 is false. While debentures can be unsecured, not all debentures are unsecured. Secured debentures are backed by specific assets, reducing the risk for debenture holders compared to unsecured debentures. Unsecured debentures, on the other hand, carry higher risk because they are not backed by specific assets.
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