Credit Arrangements Indirectly Secured by Margin Stock

C

Sure, I'd be happy to help!

The term "purpose credit" refers to a loan that is used specifically for the purpose of purchasing or carrying margin stock, which is stock bought with borrowed money or held as collateral for a loan. When a loan is secured by margin stock, it is considered indirectly secured because the value of the stock can fluctuate, which means that the value of the collateral can also change.

With this in mind, let's look at each answer choice:

A. A loan made to purchase margin stock secured by nonmargin stock

This option is not a purpose credit because the loan is secured by nonmargin stock, not margin stock. Therefore, it is not indirectly secured by margin stock and does not fall under the definition of a purpose credit.

B. A loan made to a company for various corporate purposes, including the purchase of margin stock, secured by the corporate assets, which from time to time include margin stock; on the date of the consummation of the transaction approximately 10 percent of the assets of the company are margin stock

This option is the most likely to be considered a purpose credit because the loan is being used for various corporate purposes, including the purchase of margin stock, and is secured by the company's assets, which include margin stock. Additionally, approximately 10 percent of the assets of the company are margin stock at the time of the transaction. Since the loan is indirectly secured by margin stock, it would be considered a purpose credit.

C. A loan made to purchase margin stock, guaranteed by an individual who has pledged margin stock as security for the guarantee

This option is not a purpose credit because the loan is guaranteed by an individual who has pledged margin stock as security for the guarantee, not the loan itself. Therefore, it is not indirectly secured by margin stock and does not fall under the definition of a purpose credit.

D. Bank is the trustee for a qualified pension plan from which the participants may borrow and use their interest in the plan as security; a participant borrows money for the purpose of purchasing margin stock

This option is not a purpose credit because the loan is secured by the participant's interest in the qualified pension plan, not margin stock. Therefore, it is not indirectly secured by margin stock and does not fall under the definition of a purpose credit.

In summary, option B would most likely be considered a purpose credit because the loan is being used for various corporate purposes, including the purchase of margin stock, and is indirectly secured by margin stock.