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Introduction to Debentures

Give Reasons ...

Question

Give Reasons or Explain the following:
Margin requirement determines the value of loan.

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Solution

Margin requirement refers to the difference between the current value of the security offered for loan (called collateral) and the value of loan granted. Therefore, margin requirement determines the value of loan. If the margin requirement is high, then the value of the loan will be low whereas if the margin requirement is low, then the value of the loan will be high.

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