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A margin requirement specifies what?
AThe share of a bank deposits held back as cash reserve
BThe lowest balance a customer must keep in an account
CThe largest loan a broker may extend to one client
DThe least cash an investor must put up to buy securities
Answer & Solution
Correct answer: D. The least cash an investor must put up to buy securities
1. Margin requirements are the second half of selective credit controls.
2. They specify the minimum amount of cash an investor must put up to buy securities.
3. Those securities may be investment certificates issued by corporations or by governments.
4. The balance of the purchase cost can be financed by borrowing from a bank or a brokerage firm.
5. Lowering the requirement stimulates securities trading and raising it slows trading.
6. The reserve held back by a bank is the reserve requirement, which applies to deposits rather than to an investor purchase.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.2 The Federal Reserve System_
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