Which One of the Following Statements About Margin Trading Is

question 116

Multiple Choice

Which one of the following statements about margin trading is correct?

• A) The Federal Reserve sets the minimum margin requirement for margin trading.
• B) If Fred buys $1,000 worth of stock using 60% margin, he will need to pay $400 in cash to make the purchase.
• C) Purchasing stocks on margin is less risky than purchasing stocks by paying cash for the entire purchase.
• D) Margin trading increases the potential profits while lowering the potential losses on a percentage basis.

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Definitions:

Product Market

The marketplace in which final goods or services are offered to consumers, businesses, and the public.

Circular Flow Model

An economic model illustrating the continuous movement of goods, services, and money among households and businesses in an economy.

Market System

An economic system in which decisions regarding investment, production, and distribution are based on supply and demand, and prices of goods and services are determined in free markets.

Inefficiency

A condition where resources are not used in the most economically beneficial way, leading to wasted resources or less-than-optimal outcomes.