Margin Account: Trivia Questions! Quiz
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Regulation T applies to which of the following? a. Municipal securities b. Securities listed on a registered stock exchange c. Securities listed on Nasdaq d. U.S. Treasury
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A,b &c
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A & c
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B & c
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A, b & d
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Dive into the essentials of margin accounts with the 'Margin Account: Trivia Questions!' Quiz. Explore key regulations like Regulation T, understand margin requirements, and grasp critical financial concepts. Ideal for finance professionals and students aiming to enhance their understanding of securities trading and compliance.
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- 2.
The current initial margin requirement under Regulation T is:
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15%
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30%
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45%
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50%
Correct Answer
A. 50%Explanation
The current initial margin requirement under Regulation T is 50%. This means that investors are required to deposit at least 50% of the total value of the securities they wish to purchase on margin. The remaining 50% can be borrowed from the broker. This requirement is set by the Federal Reserve to ensure that investors have enough equity in their accounts to cover potential losses and to prevent excessive borrowing and speculation.Rate this question:
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- 3.
The minimum maintenance requirement for a long term margin position is:
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30%
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25%
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20%
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10%
Correct Answer
A. 25%Explanation
The minimum maintenance requirement for a long-term margin position is 25%. This means that the investor must maintain at least 25% of the total value of the position in their account to avoid a margin call. A margin call occurs when the account falls below the minimum requirement, and the investor is required to deposit additional funds to bring it back up to the required level. A 25% maintenance requirement is common in margin trading and provides a buffer to protect against potential losses.Rate this question:
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- 4.
A customer's initial purchase in a margin account is for stock worth $3,000. Under industry rules, how much would the customer be required to deposit?
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$1,500
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$2,000
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$2,500
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$3,000
Correct Answer
A. $2,000Explanation
The FRB would require a deposit of $1,500 ($3,000 x 50%). However, this doesn't meet the overriding industry requirement of a minimum deposit of the lesser of $2,000 or the total purchase price.Rate this question:
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- 5.
All of the following factors are used for computation in a long margin account, EXCEPT the:
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Long market value
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Short market value
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Debit balance
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Equity
Correct Answer
A. Short market valueExplanation
The short market value is not used for computation in a long margin account. A long margin account involves borrowing funds from a broker to purchase securities. The factors used for computation in a long margin account include the long market value (the value of securities held in the account), the debit balance (the amount borrowed), and the equity (the difference between the long market value and the debit balance). The short market value, on the other hand, is relevant in a short margin account, where an investor borrows securities to sell them with the expectation of buying them back at a lower price.Rate this question:
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- 6.
Excess equity is the amount by which the equity in the account is:
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Below the initial margin requirement
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Above the initial margin requirement
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Below the maintenance requirement
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Above the maintenance requirement
Correct Answer
A. Above the initial margin requirementExplanation
Excess equity refers to the surplus amount of equity in an account that exceeds the initial margin requirement. This means that the account has more equity than what is initially required to open or maintain a position. Having excess equity provides a buffer or cushion for the trader, allowing them to withstand potential losses or fluctuations in the market. It also gives them the flexibility to potentially take on additional positions or increase their trading activity.Rate this question:
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- 7.
A customer sells short 100 shares of ELS at $50 per share. The credit balance in the customer's account after the customer deposits the required margin is:
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$10,000
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$7,500
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$5,000
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$2,500
Correct Answer
A. $7,500Explanation
The credit balance would be the proceeds of the sale plus the required Regulation T deposit ($5,000 + $2,500 = $7,500)Rate this question:
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- 8.
A decrease in the value of the stock in a long position may cause the account to:
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Become restricted
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Fall below the Reg. T margin
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Both a and b
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Neither a or b
Correct Answer
A. Both a and bExplanation
Both a and b. When the value of a stock in a long position decreases, it can cause the account to become restricted because the broker may impose certain restrictions on trading activities. Additionally, if the decrease in value causes the account's equity to fall below the Reg. T margin requirement, it will be considered undermargined and may face a margin call or liquidation. Therefore, both situations can occur as a result of a decrease in the stock's value.Rate this question:
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- 9.
Excess equity in a short account is created when the stock:
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Increases in value
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Decreases in value
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Value remains the same
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None of the above
Correct Answer
A. Decreases in valueExplanation
Excess equity in a short account is created when the stock decreases in value. In a short sale, an investor borrows shares and sells them, anticipating that the stock price will decline. If the stock indeed decreases in value, the investor can repurchase the shares at a lower price, return them to the lender, and keep the difference as profit. This results in excess equity in the short account. If the stock increases in value or remains the same, the investor would incur losses and there would be no excess equity.Rate this question:
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- 10.
Municipal bonds have a margin requirement of what percentage of market value?
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5%
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10%
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30%
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None of the above
Correct Answer
A. None of the aboveExplanation
Municipal bonds are subject to a margin requirement of 7% of the market value.Rate this question:
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- 11.
A client has the following margin account: Long Market Value = $340,000 Short Market Value = $60,000 Debit Balance = $150,000 Credit Balance = $110,000 What is the client's total equity?
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$14,000
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$150,000
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$240,000
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$320,000
Correct Answer
A. $240,000Explanation
To calculate equity in a combined margin account, the formula is:
(LMV - DR) + (CR - SMV)Rate this question:
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- 12.
Initial and maintenance requirements for U.S. government obligations are:
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1% for government securities with less than 1 year to maturity
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6% for government securities with 20 or more years to maturity
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Both a and b
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Neither a nor b
Correct Answer
A. Both a and bExplanation
The correct answer is "Both a and b." This means that both options a (1% for government securities with less than 1 year to maturity) and b (6% for government securities with 20 or more years to maturity) are correct. This implies that the initial and maintenance requirements for U.S. government obligations vary depending on the maturity of the securities. For securities with less than 1 year to maturity, the requirement is 1%, while for securities with 20 or more years to maturity, the requirement is 6%.Rate this question:
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- 13.
A customer has a margin account with a long market value of $15,000, a debit balance of $8,000, a credit balance of $10,000, and a short market value of $4,000. What is the customer's combined equity?
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$28,000
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$15,000
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$13,000
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$12,000
Correct Answer
A. $13,000Explanation
The formula for combined equity is:
(LMV - DR) + (CR - SMV)Rate this question:
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- 14.
Ms. Black sells short 1,000 shares of ABC at $20 generating proceeds of $20,000. What are her options in terms of meeting the Reg. T call? a. Deposit $10,000 in cash b. Deposit $15,000 in cash c. Deposit $10,000 worth of marginable securities d. Deposit $20,000 worth of marginable securities
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A and c
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A and d
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B and c
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B and d
Correct Answer
A. A and dExplanation
Ms. Black sells short 1,000 shares of ABC at $20, generating proceeds of $20,000. A Reg. T call refers to the requirement by the Federal Reserve Board for an investor to deposit a certain amount of cash or marginable securities to cover the margin requirement. In this case, Ms. Black has two options to meet the Reg. T call. Option a suggests depositing $10,000 in cash, which would cover half of the proceeds generated. Option d suggests depositing $20,000 worth of marginable securities, which would cover the entire proceeds generated. Therefore, the correct answer is a and d.Rate this question:
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- 15.
Mr. Green's securities that were originally worth $20,000 decline in value to $16,000. He has a debit balance of $10,000. What effect does this have?
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Equity declines
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Equity increases
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Debt declines
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Debt increases
Correct Answer
A. Equity declinesExplanation
When the value of Mr. Green's securities declines from $20,000 to $16,000, it results in a decrease in his overall equity. Equity represents the net worth of an individual or company and is calculated by subtracting liabilities (in this case, the debit balance of $10,000) from assets (the value of securities). Therefore, when the value of the securities decreases, it directly affects the equity by reducing it.Rate this question:
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- 16.
A customer's initial purchase in a margin account is for stock worth $1,800. What is the required initial deposit?
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$900
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$1,800
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$2,000
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$2,9000
Correct Answer
A. $1,800Explanation
Industry rules would require a deposit of $1,800 since $2,000 would be great than the total purchase price, and the Reg. T requirement of $900 ($1,800 x 50%) would be insufficient.Rate this question:
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- 17.
A customer purchases 100 shares of stock at $50 in a new margin account. What is the required initial deposit?
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$2,000
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$2,500
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$4,000
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$5,000
Correct Answer
A. $2,500Explanation
The customer would need to meet the Reg. T requirement of $2,500 since this is greater than the $2,000 required by industry rules.Rate this question:
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- 18.
The long market value of securities in a margin account declines to $50,000 when the debit balance is $40,000. The equity is $10,000. How much would the customer receive a maintenance call for?
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$2,000
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$2,500
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$10,000
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$12,500
Correct Answer
A. $2,500Explanation
Since the required equity is $12,500 ($50,000 x 25%), the customer would get a maintenance call for $2,500.Rate this question:
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- 19.
Mr. Smith purchases securities with a total market value of $20,000. If the securities go up in value to $24,000, what is the new loan value?
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$2,000
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$4,000
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$12,000
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$14,000
Correct Answer
A. $12,000Explanation
$24,000 x 50% = $12,000Rate this question:
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- 20.
The extension of credit by a broker-dealer to a customer is regulated by the:
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Federal Reserve Board
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Securities and Exchange Commission
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Financial Industry Regulatory Authority
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Municipal Securities Rulemaking Board
Correct Answer
A. Federal Reserve BoardExplanation
The extension of credit by a broker-dealer to a customer is regulated by the Federal Reserve Board. The Federal Reserve Board is responsible for overseeing the regulation and supervision of banks and financial institutions, including broker-dealers. They establish rules and regulations to ensure the safety and soundness of the financial system, including the extension of credit by broker-dealers.Rate this question:
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Current Version
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Mar 19, 2023Quiz Edited by
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Jun 13, 2012Quiz Created by
Esalas21
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