Which statement correctly describes fixed vs floating security?

Which statement correctly describes fixed vs floating security?

• A. Fixed: specific assets; Floating: general assets
• B. Fixed: general assets; Floating: specific assets
• C. Fixed: no collateral; Floating: collateralised
• D. Floating: cash only; Fixed: assets

Answer: (A)

The main idea is the difference in what the security actually covers. A fixed charge attaches to specific, identifiable assets. If the borrower defaults, the lender can target those particular assets to satisfy the debt. A floating charge, by contrast, covers a changing pool of assets the business uses in the ordinary course—things like stock or receivables that can be bought and sold without immediately needing the lender’s consent. The charge “floats” over these assets until a crystallization event, after which it fixes to the assets currently in the pool. So, the statement that best fits is that fixed security is tied to specific assets, while floating security covers a general or changing set of assets. The other descriptions don’t capture this distinction: fixed over general assets isn’t accurate; floating over specific assets isn’t how a floating charge operates; and security over cash only isn’t a defining rule for floating versus fixed.

The main idea is the difference in what the security actually covers. A fixed charge attaches to specific, identifiable assets. If the borrower defaults, the lender can target those particular assets to satisfy the debt. A floating charge, by contrast, covers a changing pool of assets the business uses in the ordinary course—things like stock or receivables that can be bought and sold without immediately needing the lender’s consent. The charge “floats” over these assets until a crystallization event, after which it fixes to the assets currently in the pool.

So, the statement that best fits is that fixed security is tied to specific assets, while floating security covers a general or changing set of assets. The other descriptions don’t capture this distinction: fixed over general assets isn’t accurate; floating over specific assets isn’t how a floating charge operates; and security over cash only isn’t a defining rule for floating versus fixed.