Future Business Leaders of America (FBLA) Agribusiness Practice Test

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Enhance your FBLA Agribusiness knowledge with our comprehensive test. Dive into flashcards and multiple-choice questions, complete with hints and explanations, to ensure exam success. Prepare confidently for a bright future!

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What is the primary function of collateral?

To increase the credit score of a borrower
To secure repayment of a loan
To allow for faster loan processing
To serve as a profit margin for lenders

The correct answer is: To secure repayment of a loan

The primary function of collateral is to secure repayment of a loan. When a borrower provides collateral, they are offering an asset that the lender can claim if the borrower fails to repay the loan. This reduces the risk for the lender, as they have a tangible resource to fall back on if the borrower defaults. The presence of collateral can make it easier for borrowers to obtain loans since lenders are more willing to extend credit when they have security backing the loan agreement. This security feature can also influence the terms of the loan, potentially allowing for lower interest rates or larger loan amounts compared to unsecured loans. By effectively mitigating the lender's risk, collateral plays a crucial role in lending agreements and financial transactions.