Question

Naked debentures are

• A. fully secured
• B. partly secured
• C. unsecured
• D. none of these

Hint:

Remember: "Naked" in finance means “without protection/security.”

Answer 1

The Correct Option is C

Step 1: What are debentures?
Debentures are long-term financial instruments issued by companies to borrow money from the public. They can be secured or unsecured.
Step 2: Meaning of naked debentures.
Naked debentures are those which are not backed by any security or asset.
Investors rely solely on the company’s creditworthiness and reputation.
Step 3: Risk factor.
Since no asset backs them, naked debentures are highly risky for investors. Companies may default in repayment, leading to a high degree of uncertainty.
Step 4: Option analysis.
- (A) Fully secured: Wrong, naked means without security.
- (B) Partly secured: Wrong, no partial backing is provided.
- (C) Unsecured: Correct definition of naked debentures.
- (D) None of these: Wrong, because (C) is correct.
Step 5: Conclusion.
Naked debentures are always unsecured.