Obtaining Statement of Purpose for Loans Secured by Margin Stock
Question
_____________ requires that a statement of purpose be obtained from borrowers whose loans are to be greater than $100,000 and that will be secured by margin stock. Loans made for the purpose of purchasing margin stock are subject to additional limitations
Answers
Explanations
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A. B. C. D.A
The correct answer is A. Regulation U.
Regulation U is a Federal Reserve Board regulation that applies to loans made for the purpose of purchasing or carrying margin stock. Margin stock refers to securities that can be purchased on margin, which means that the investor is borrowing money from a broker to buy the securities.
Under Regulation U, a statement of purpose must be obtained from borrowers whose loans are to be greater than $100,000 and that will be secured by margin stock. This statement of purpose is meant to ensure that the loan is not being used for speculative or other prohibited purposes.
In addition, loans made for the purpose of purchasing margin stock are subject to additional limitations under Regulation U. For example, the amount of credit extended for the purchase of margin stock cannot exceed a certain percentage of the current market value of the securities.
Regulation V, also known as the Fair Credit Reporting Act, relates to the use of credit reports by lenders and other parties. Regulation Z, also known as the Truth in Lending Act, requires lenders to disclose the terms and costs of credit to consumers. Regulation X, also known as the Real Estate Settlement Procedures Act, provides protections to borrowers in real estate transactions.
