Question

The difference between the correct market value and the loan value of a given security in banking terms is known as __________.

• A. the collateral value
• B. the security value differential
• C. the margin
• D. All the above

Answer 1

Answer: (C)

the margin

A Margin Requirement is the percentage of minimum securities that an investor must pay for with his/her own cash.

The central bank (RBI) is empowered to fix the “margin” for commercial banks and thereby fix the maximum amount which the purchaser of securities may borrow against those securities. Thus, when the margin requirements are changed, the amounts of loan available are altered.