#1
What is a margin call in securities trading?
A call from the broker requesting more funds to cover losses in the account
ExplanationRequest for additional funds due to account losses.
#2
What does 'T+2 settlement' mean in securities trading?
The transaction is settled 2 days after the trade execution
ExplanationTransaction settlement two days post-trade execution.
#3
What is the purpose of a stop-loss order in margin trading?
To limit potential losses by automatically selling a security if it drops to a specified price
ExplanationAutomatically selling to cap losses at a preset price.
#4
What is the initial margin requirement?
The minimum amount of money required to open a margin account
ExplanationMinimum capital to initiate a margin account.
#5
What is the purpose of a margin account?
To allow investors to borrow funds from the brokerage firm to purchase securities
ExplanationFacilitating borrowing for security purchases.
#6
In securities trading, what does the term 'short position' refer to?
A position where an investor sells securities they do not own, with the intention of buying them back at a lower price
ExplanationSelling securities not owned with intent to repurchase cheaper.
#7
Which of the following is a primary purpose of margin requirements in securities trading?
To reduce the risk of default
ExplanationTo mitigate default risk.
#8
What is the maintenance margin requirement?
The minimum amount of equity that must be maintained in a margin account
ExplanationMinimum equity required for account maintenance.
#9
What is the Federal Reserve's role in setting margin requirements?
The Federal Reserve has no role in setting margin requirements
ExplanationFederal Reserve has no involvement in setting margins.
#10
Which of the following is true about buying on margin?
It increases potential losses on investments
ExplanationMargin buying escalates investment loss potential.
#11
Which regulatory body oversees margin requirements for securities trading in the United States?
Securities and Exchange Commission (SEC)
ExplanationSEC regulates margin requirements in the US.
#12
What is the effect of a higher margin requirement on securities trading?
It discourages excessive borrowing and speculative trading
ExplanationHigher margin requirements deter over-borrowing.
#13
In securities trading, what does 'short selling' refer to?
Selling securities that one does not own, with the intention of buying them back later at a lower price
ExplanationSelling borrowed securities to buy back at lower prices.
#14
What is a short squeeze?
A situation where traders are unable to cover their short positions
ExplanationInability to cover short positions due to market dynamics.
#15
Which of the following is NOT a risk associated with trading on margin?
Increased liquidity in the market
ExplanationMargin trading doesn't boost market liquidity.
#16
What is a 'voluntary' or 'maintenance' margin call?
A call initiated by the investor to increase margin requirements
ExplanationInvestor-initiated call to hike margin levels.
#17
Which of the following is NOT typically used as collateral for margin trading?
Real estate
ExplanationReal estate is not a common margin collateral.
#18
Which of the following is a potential consequence of failing to meet a margin call?
Automatic liquidation of securities in the margin account.
ExplanationSecurities liquidation due to missed margin call.