Unit 6: Margin Accounts

Question 1

Through________ accounts, investors can borrow money from brokerage firms by pledging collateral

Answer 1

margin

Question 2

The ____________regulates margin transactions

Answer 2

Federal Reserve Board

Question 3

__________ are required to impose initial maintenance requirements on all margin accounts.

Answer 3

Broker-dealers

Question 4

In this type of margin account, customers purchase securities and pay interest on the money borrowed until the loan is repaid

Answer 4

Long margin accounts

Question 5

In this type of account, stock is borrowed and then sold short, enabling the customer to profit if its value declines.

Answer 5

Short margin accounts

Question 6

Regulation T – customers must deposit a min of ______% of the market value of the transaction within five business days.

Answer 6

50%

Question 7

Initial Requirements – the customer is required to deposit the greater of Regulation T requirement or the FINRA minimum. The exception occurs when the customer’s initial purchase is less than $2,000; the customer is not required to deposit $2,000, only _____________.

Answer 7

the full purchase price.

Question 8

If the customer’s first purchase in a margin account is less than $2,000, deposit ________ of the purchase price.

Answer 8

100%

Question 9

If the first purchase is between $2,000 - $4,000, deposit __________.

Answer 9

$2,000

Question 10

If the first purchase is greater than $4,000, deposit ______%.

Answer 10

50%.

Question 11

The practice of recalculating to check the status of the equity is the account is called _________.

Answer 11

marking to the market

Question 12

Long margin accounting: when money is paid into a margin account, the debit balance is________, and the equity is_________.

Answer 12

decreased;

increased

Question 13

In a Long Margin Account, Minimum Maintenance -s _____% of LMV

Answer 13

25%

Question 14

When the market value of securities goes up or down, the ______ does not change.

Answer 14

Debit (DR)

Question 15

The interest paid by margin customers on money borrowed is a variable rate based on the ______ ______ rate.

Answer 15

broker call rate

Question 16

Regulation T applies to both cash and margin accounts; customers have _______ business days to pay for the purchase regardless of the account type. Firms, however, expect payment the regular way: within _____ business days of trading.

Answer 16

four;

two

Question 17

If an account falls below minimum, a_____________ call will be sent in an amount sufficient to bring the account back up to minimum.

Answer 17

maintenance

Question 18

A rule to determine SMA (Special Memorandum Account) is as follows: for every $___ increase in market value, $____of SMA is created. In the previous example, market value increased by $20,000, which created SMA of $10,000.

Answer 18

$1;

$.50

Question 19

The amount of SMA in the account is equal to the greater of the _____ ______or the amount already in SMA.

Answer 19

excess equity

Question 20

SMA may be more than excess equity and may exist even if there is no excess equity in the account. SMA is_______ power.

Answer 20

buying

Question 21

If a customer wants to remove cash dividends coming into his margin account, he must do so within _____ days of receipt. Otherwise, the cash dividend will be applied against the debit balance, thereby increasing the equity in the account.

Answer 21

30

Question 22

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

Answer 22

All but equity are affected. LMV, DR, SMA. Equity is affected only if the customer elects to remove half of the proceeds.

Question 23

The amount of equity that must be deposited to buy securities

Answer 23

Margin

Question 24

Securities that can be used as collateral in a margin account.

Answer 24

Marginable

Question 25

A demand that the customer make a payment to bring the account back to minimum.

Answer 25

Maintenance calls

Question 26

If the equity in the account is less than the Regulation T amount but greater than or equal to the minimum maintenance requirement, the account is ________.

Answer 26

Restricted

Question 27

A firm can impose a maintenance level higher than the FINRA minimum maintenance rule level, this is referred to as a ______ minimum.

Answer 27

House minimum

Question 28

The amount of equity exceeding the Regulation T requirement is known as _______ equity.

Answer 28

Excess Equity

Question 29

A term used when securities are purchased and then sold before making payment for the purchase.___________ is generally prohibited in both cash and margin accounts. As a penalty, the account will be frozen for 90 days and no new transactions can occur unless there is cash or marginable securities in the account before the purchase is made.

Answer 29

Freeriding

Question 30

The current market value of the stock position is either a ______ Market Value (LMV) or a _______ Market Value (SMV)

Answer 30

Long Market Value (LMV) or a Short Market Value (SMV)

Question 31

The amount of money borrowed by the customer is added to the _____ on the T chart.

Answer 31

Debit Register (DR)

Question 32

The amount of money in the customer’s account; equal to the sales proceeds plus margin deposit requirement is added to the _______ on the T chart.

Answer 32

Credit Register (CR)

Question 33

The customer’s net worth in the margin account; it represents the portion of the securities the customer fully owns.

Answer 33

Equity (EQ)

Question 34

A strategy an investor uses to profit from a decline in a stock’s price. Selling_______ must always be done through a margin account.

Answer 34

short

Question 35

On a short margin account, CR-SMV=_____

Answer 35

EQ

Question 36

On a short margin account, FINRA minimum maintenance requirement is ______ (compared to 25% on long position).

Answer 36

30%

Question 37

What is the min initial dollar requirement in short margin

Answer 37

$2,000

Question 38

What is the Reg T requirement in a short margin?

Answer 38

50%

Question 39

The credit balance is the stock sales proceeds plus the_______ deposited.

Answer 39

equity

SMV + EQ

Question 40

To find the maximum market value to which the short sale position can increase before a maintenance call is issued, apply the following formula: Total Credit Balance / ______. This is known as the short market value at maintenance.

Answer 40

1.3

Question 41

For stock trading under $5 per share in a short account, a customer must maintain 100% SMV or ________per share, whichever is greater.

Answer 41

$2.50

Question 42

For stock trading at $5 per share and above in a short account, the minimum requirement is $5 per share or ______%, whichever is greater.

Answer 42

30%

Question 43

SMA in a long account will be affected by two things:

1) The______ of securities in the account
2) The_______ deposited by the customers

Answer 43

sale of a security in the account; the cash deposited by the customers