Answers
- 1. Answer: C. Rationale: By the Fed’s Regulation T, a broker-dealer is allowed to loan a client up to 50% of a security’s market value.
- 2. Answer: A. Rationale: In order to open a margin account, customers are required to sign a credit agreement and a hypothecation agreement. Although the customer is not REQUIRED to sign the loan consent, he is asked to, because a signed loan consent form permits the broker-dealer to lend his securities to customers wishing to execute short sales.
- 3. Answer: A. Rationale: The FINRA minimum maintenance requirement on long positions is 25% (30% on short positions).
- 4. Answer: A. Rationale: When equity exceeds 50% of the long market value (LMV) of a stock in a margin account, the excess equity is put into a special memorandum account (SMA). The customer may draw from the account to buy more securities on margin or for any other purpose, but its value only decreases when withdrawn. If at any time the LMV should drop, funds i