Security

Security refers to various forms of assurances provided to lenders or measures taken in financial and e-commerce contexts to ensure the integrity, privacy, and authenticity of transactions or assets.
On this page

Definition of Security

Security has multiple meanings within financial and digital contexts:

  1. As Collateral: An asset or assets to which a lender can have recourse if the borrower defaults on the loan repayments. For loans made by banks and other moneylenders, this security is sometimes referred to as collateral.

  2. As Financial Assets: Includes shares, government stocks, debentures, bonds, unit trusts, and rights to money lent or deposited. It excludes insurance policies. Related terms include:

    • Bearer Security: A security not registered in the name of the owner.
    • Fixed-Interest Security: A security that pays a fixed rate of interest.
    • Gilt-Edged Security: High-grade bonds issued by governments or corporations.
    • Listed Security: A security that is traded on a stock exchange.

  3. In E-Commerce: Refers to the precautions taken to ensure that the following attributes are safeguarded:

    • Authentication: Verifying the identity of parties to a transaction, often through digital signatures.
    • Privacy and Confidentiality: Protecting transaction data and ensuring non-essential traces of the transaction are removed from public networks.
    • Integrity: Ensuring the messages sent are complete and uncorrupted.
    • Non-repudiation: Preventing the sender of a message from denying having sent it.

Examples

  1. As Collateral: A homeowner takes out a mortgage and puts their house up as security; if they default, the bank can seize the house.

  2. As Financial Assets:

    • Shares: Ownership in a company.
    • Bonds: A debt security, where the issuer owes the holders a debt.
    • Unit Trusts: Pooled investment funds.

  3. In E-Commerce:

    • Using SSL certificates for secure transactions.
    • Implementing two-factor authentication for user accounts.

Frequently Asked Questions

Q1: Can land be used as security for a loan? A1: Yes, land can be used as security for a loan, and if the borrower defaults, the lender can have recourse to the land.

Q2: What is a bearer security? A2: A bearer security is a security not registered in the owner’s name, making it transferable without documentation.

Q3: Why is non-repudiation important in e-commerce? A3: Non-repudiation ensures that a party to a transaction cannot deny having sent a message or performed an action, which is vital for establishing trust in digital transactions.

Q4: What measures ensure integrity in e-commerce? A4: Measures ensuring integrity include checks to confirm that messages are complete and uncorrupted, such as hash algorithms.

Q5: How does authentication work in digital transactions? A5: Authentication in digital transactions often uses digital signatures or certificates to verify the identities of the parties involved.

  • Collateral: Assets pledged by a borrower to secure a loan.
  • Bearer Security: A transferable security that is not registered in the name of the owner.
  • Fixed-Interest Security: A security that pays a fixed rate of interest.
  • Gilt-Edged Security: High-grade bonds issued by governments or corporations, considered to be low risk.
  • Listed Security: A security that is listed and traded on a stock exchange.
  • Digital Signature: A digital code attached to an electronically transmitted message that uniquely identifies the sender.
  • Two-Factor Authentication (2FA): A security process in which the user provides two different authentication factors to verify their identity.

Online References

  1. Investopedia: Types of Securities
  2. Wikipedia: Security (Finance)
  3. Techopedia: Security Measures in E-commerce
  4. IRS: Collateral

Suggested Books for Further Studies

  1. “Security Analysis” by Benjamin Graham and David Dodd
  2. “The Intelligent Investor” by Benjamin Graham
  3. “Principles of Security and Trust” by A. Sabelfeld
  4. “E-commerce Security: Weak Spots” by Henri Bartle
  5. “The Basics of Financial Management” by Steve Peterson

Accounting Basics: “Security” Fundamentals Quiz

Loading quiz…

Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Keep striving for excellence in your financial knowledge!

Security Deposit
Securitization