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SERIES 7 > Unit 6- Margin Accounts > Flashcards

Unit 6- Margin Accounts Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Long Margin Account

A

BORROW MONEY: purchase securities and pay interest on money borrowed until the loan is repaid

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2
Q

Short Margin Account

A

BORROW SECURITIES: stock is borrowed and then sold short, enabling customer to profit if stock value declines

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3
Q

If purchase 100 shares at $20 with 50% on margin and the stock rises to $30, what is your return?

A

$10,000 = your initial investment ($10,000 borrowed), and the investment increased by $10,000. Therefore (10,000/10,000 = 1). The investment grew by 100%.

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4
Q

Credit Agreement

A

terms of loan and interest, etc..

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5
Q

Hypothecation Agreement

A

gives broker permission to treat margin securities as collatoral

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6
Q

Loan Consent Agreement

A

OPTIONAL for customer to sign

- permission for broker/dealer to loan margin securities to other customers for short sales

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7
Q

Regulation T

A

Act of 1934

  • customers must deposit a minimum of 50% of the market value of the transaction within 5 business days
  • also determines which securities can be used at collateral for loans and which can be purchased on margin
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8
Q

MARGIN

A

amount of equity that must be deposited to buy securities in a margin acount

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9
Q

MARGINABLE

A

the securities that can be used as collateral in a margin acount

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10
Q

PUTS & CALLs
Rights
Non-Nasdaq OTC issues not approved by FRB
Insurance Contracts

CAN/CANNOT be purchased on margin?
CAN/CANNOT be used as collatoral?

A

CANNOT/CANNOT

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11
Q

Mutual Funds
New Issues

CAN/CANNOT be purchased on margin?
CAN/CANNOT be used as collatoral?

A

CANNOT/

CAN after 30 days

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12
Q

Exchange Listed STocks and Bonds
Nasdaq Stocks
Non-Nasdaq OTC issues approved by FRB
Warrants

CAN/CANNOT be purchased on margin?
CAN/CANNOT be used as collatoral?

A

CAN/CAN

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13
Q

What are the only type of options that can be purchased on margin?

A

LEAPS options with more than nine months to expiration, requirement is 75%

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14
Q

A customer purchases 100 ABC at 62 and also writes a ABC 65 call at 3. What is the margin deposit?

A

50% of the Stock purchase ($3,100) MINUS the call premium ($300) = $2,800

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15
Q

REQUIRED DEPOSIT IN Margin ACCOUNT

A

= 50% of Position VALUE - Call Premium Earned

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16
Q

REQUIRED DEPOSIT IN CASH ACCOUNT

A

= 100% of POSITION VALUE - Call Premium Earned

17
Q

A customer purchases 100 ABC at 62 and also buys a ABC 65 call at 3. What is the margin deposit?

A

$3100 + $300 = $3400

18
Q

If debt spread on margin, required to deposit maximum loss, which is?

A

Net Debt

19
Q

If credit spread on margin, require to deposit maximum loss, which is?

A

Difference in Strike Prices - net credit

20
Q

Initial Deposits in margin account must be greater than?

What is the exception?

A

$2000
* If initial purchase is less than 2,000, than initial deposit equals 100% of the investment (DOES NOT APPLY FOR SHORT MARGIN)

21
Q

How many days after trade date must customer meet margin requirements?

A

5 business days

22
Q

Freeriding

A

When securities are purchased and then sold before making payment for the purchase

23
Q

Long Market Value (LMV)

A

the current market value of stock position

24
Q

Debit Register (DR)

A

amount of money borrowed by the customer

25
Q

Equity (EQ)

A

customer’s net worth in the margin account

portion fully owned by the customer

26
Q

FINRA requires what % of long market value in long margin account for minimum maintenance? Regulation T requires?

A

25%, 50%

27
Q

Restricted Account when:

A

equity is less than Regulation T (50%) but more than minimum maintenance of 25%

28
Q

SMA (Special Memorandum Account)

A

Excess Equity

EQ-Regulation T required

29
Q

How many days does customer have to remove cash dividends from margin account?

A

30 days

30
Q

Retention Requirement (if restricted)

A

If selling securities, at least 50% of the proceeds are credited to SMA of a restricted account

31
Q

If securities are sold in a restricted account, which are affected? LMV/DR/EQ/SMA

A

LMV, DR, and SMA

**EQ is only impacted if customer elects to remove proceeds

32
Q

If shorting stock below $5, what is the initial deposit?

A

2000 or $2.5/ share, whichever is greater

33
Q

FINRA minimum maintenance on shorts (%) ?

A

30%

SERIES 7 (13 decks)

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