This workout asks us to identify whether the following statements are true or false with regards to different types of collateral. The first statement says that government bonds are the most frequently used type of collateral. This is a false statement. The most frequently used type of collateral is cash.

The second statement says, all forms of collateral are as equally beneficial to the holder. This is a false statement. Some forms of collateral, for example, equity and corporate bonds have more risks associated with them, high levels of market risk and credit risk, whereas cash tends to have the lowest form of risk associated with it because there is no credit risk and no market risk and no liquidity risk associated with cash as collateral. The third statement says that any assets can be pledged as collateral. This is a true statement. The different types of collateral that can be pledged between two counterparties, however, would need to be defined within documentation between those two counterparties. Stock lending transactions do not require collateral is the next statement. This is a false statement. Most typically stock lending transactions do require collateral, and this is the cash proceeds received by the borrower of the stock that they get for selling it. Potentially motivated in setting up a short position. That cash is then lodged as collateral, typically with the lender of those securities. Finally, cash collateral has the least risk associated with it. As previously alluded to, this is a true statement. There's no market risk with cash. There's no credit risk with cash. There is no liquidity risk associated with cash as collateral.