In which scenario is a PMSI created?

A Purchase Money Security Interest (PMSI) is a special type of security interest that is created when a debtor obtains collateral specifically for a loan or credit that was used to acquire that collateral. In the scenario where the debtor receives collateral with the creditor's funds, this directly aligns with the definition of a PMSI. The creditor provides the funds to facilitate the purchase of a specific collateral item, thus allowing the creditor to have a security interest in that collateral.

This scenario is fundamental in the context of secured transactions because it protects the creditor's interests in the collateral associated with the financing of that purchase. In simpler terms, the debtor buys something (the collateral) with a loan from the creditor, which makes it a PMSI since the collateral serves as security for that loan.

In contrast, purchasing collateral outright with cash does not create a PMSI because the creditor had no role in funding the purchase. Selling collateral without retaining any interest does not establish a PMSI since the creditor has relinquished any claim to the collateral. Lastly, receiving collateral as a gift does not involve any transaction that creates a security interest tied to financing a purchase by the debtor. Therefore, the scenario where a debtor receives collateral using the creditor's funds best illustrates the creation of a