Social Science (087) — AI-generated practice question

Two components that make up the terms of credit are:

1. Interest rate — the rate the borrower must pay to the lender along with repayment of the principal.
2. Collateral — an asset pledged by the borrower as security/guarantee against the loan.

(Documentation requirement and mode of repayment are the other two components.)

Source: Money and Credit, Terms of Credit section, Chapter 3

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The textbook explicitly states: "Interest rate, collateral and documentation requirement, and the mode of repayment together comprise what is called the terms of credit." Any two of these four components earn full marks. Stating interest rate + collateral is the most straightforward pair to remember. Write the component name and a brief one-line definition — that secures both marks cleanly.