Question

Margin requirements (one of the Fed’s minor tools) set the minimum amount of cash that must be invested to purchase ________________..

Answer 1

securities.

Step-by-step explanation:

Margin requirements were a result of the negative effect that purchasing securities using credit operations had after the stock market crash of 1929. Back then, a lot of people speculated with the price of stocks, there is nothing wrong with it, except that they speculated with borrowed money. When the market crashed, all those loans were uncollectible. That led to a further collapse of the finance sector and eventually led to the Great Depression.

By setting margin requirements, the risk involved in buying stocks on the margin is reduced, although not completely eliminated.