Exercise

Answer the following questions

1. 1. Which of the following entities sets the initial margin requirements for investors who have margin accounts:
2. A. Each broker-dealer sets its own requirements
3. B. FINRA
4. C. Federal Reserve Board
5. D. SEC
6. 2. A customer with no other positions in his margin account goes long 400 XOM @ 70 and shorts 600 LMN @ 40. How much money will he need to deposit for these trades?
7. A. $4,000
8. B. $0
9. C. $26,000
10. D. $38,000
11. 3. Which of the following types of securities cannot be purchased on margin?
12. A. Nonconvertible bonds
13. B. Closed end funds
14. C. Open-end funds
15. D. IPOs held over thirty days
16. 4. In a new margin account, a customer deposits $15,000 in cash and immediately shorts stock worth $30,000, which she deposits in the account. Over the next two weeks, the stock rises dramatically in price to where it is worth $36,000. How much cash must the customer deposit in order to meet her minimum maintenance requirement?
17. A. $1,800
18. B. $3,000
19. C. $9,000
20. D. $0
21. 5. Polly Newman has $8,000 equity in her account. She has been dabbling recently in day trading and today has inadvertently exceeded five trades. As a pattern day trader, how much more will she need to deposit to meet her minimum equity requirement?
22. A. $2,000
23. B. $7,000
24. C. $12,000
25. D. $17,000

Answers

1. 1. C. The power to establish guidelines for the extension of credit by lenders was placed with the Federal Reserve Board under the Securities Exchange Act of 1934. By Regulation T, the Federal Reserve Board sets minimum initial margin requirements. Broker-dealers may impose more stringent margin requirements if they wish, but the minimum requirements are set