Security

Definition of Security

Security has multiple meanings within financial and digital contexts:

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.
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.
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

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

Suggested Books for Further Studies

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

Accounting Basics: “Security” Fundamentals Quiz

### What is the term 'security' applied to in the context of a bank loan? - [x] An asset to which the lender can have recourse if the borrower defaults. - [ ] The interest rate charged on the loan. - [ ] The total income of the borrower. - [ ] The bank's liability in the loan. > **Explanation:** In the context of a bank loan, 'security' refers to an asset or assets to which the lender can have recourse if the borrower defaults. ### Which of the following is NOT considered a security in financial terms? - [x] Insurance policies - [ ] Shares - [ ] Bonds - [ ] Unit trusts > **Explanation:** Insurance policies are not considered securities in financial terms, whereas shares, bonds, and unit trusts are. ### What ensures the authentication of parties in an E-commerce transaction? - [ ] Antivirus software - [x] Digital signatures - [ ] Firewalls - [ ] Encryption > **Explanation:** Digital signatures are used to verify the identities of the parties involved, ensuring the authentication of parties in an E-commerce transaction. ### What type of security pays a fixed rate of interest? - [x] Fixed-Interest Security - [ ] Gilt-Edged Security - [ ] Bearer Security - [ ] Listed Security > **Explanation:** Fixed-Interest Security refers to securities that pay a fixed rate of interest. ### Why is privacy and confidentiality important in e-commerce? - [ ] To increase transaction speed. - [x] To protect transaction data. - [ ] To reduce server costs. - [ ] To maximize profit margins. > **Explanation:** Privacy and confidentiality are important in e-commerce to protect transaction data and ensure that consumer information is kept secure. ### What kind of security is often referred to as collateral? - [ ] Stock options - [ ] Intellectual property - [x] Asset pledged by a borrower - [ ] Cash deposits > **Explanation:** Collateral refers to an asset pledged by a borrower which the lender can seize if the borrower defaults on the loan. ### What is used to ensure message integrity in E-commerce? - [x] Checks for message completeness and protection against corruption. - [ ] Username and password authentication. - [ ] Internet search engines. - [ ] Operating system updates. > **Explanation:** Checks for message completeness and protection against corruption are used to ensure message integrity in E-commerce. ### What does non-repudiation prevent in digital communications? - [x] Denial of a sent message or transaction by the sender. - [ ] Unauthorized access to the system. - [ ] High transaction fees. - [ ] Data redundancy. > **Explanation:** Non-repudiation prevents a sender from denying having sent a message or carried out a transaction, ensuring accountability. ### When is a security referred to as a 'listed security'? - [ ] When it is not registered in an owner's name. - [ ] When it is of high credit rating. - [ ] When it pays interest at a fixed rate. - [x] When it is traded on a stock exchange. > **Explanation:** A security is referred to as a 'listed security' when it is traded on a stock exchange. ### Which of the following features is NOT typically ensured in e-commerce security? - [ ] Authentication - [x] Suspension of accounts - [ ] Integrity - [ ] Non-repudiation > **Explanation:** Suspension of accounts is not typically ensured in e-commerce security. Authentication, integrity, and non-repudiation are the primary security measures in e-commerce.

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!