When the initial margin requirement is lowered from 70% to 40%, this change means
A) The OSC is officially recognizing that the stock market is too tight
B) Your broker may now arrange for a 60% loan on the value of stock collateral
C) The maintenance margin will also decline by 10%
D) Credit to finance stock purchase is less available that previously
E) Stock purchases will probably not pay lower interest rates on their accounts

Question

Quizplus · Accepted Answer

When the initial margin requirement is lowered, it means that investors will be required to put up less capital to buy stocks. This allows brokers to arrange for larger loans, up to 60% of the value of the stock collateral, as stated in choice B. The maintenance margin may or may not decline, and there is no indication of whether credit or interest rates will be affected, making choices A, C, D, and E incorrect.

When the Initial Margin Requirement Is Lowered from 70% to 40