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Brokers who sell stock on margin will protect themselves by Blank______.Multiple select question.selling the stock to satisfy the loanrequiring additional cash contributions from the investorholding the stock as collateralcharging high rates of interest

Question

Brokers who sell stock on margin will protect themselves by Blank______.Multiple select question.selling the stock to satisfy the loanrequiring additional cash contributions from the investorholding the stock as collateralcharging high rates of interest

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Solution

Brokers who sell stock on margin protect themselves by:

  1. Selling the stock to satisfy the loan: If the investor cannot meet the margin call, the broker can sell the stock to recover the loan amount.

  2. Requiring additional cash contributions from the investor: If the value of the stock falls, the broker may issue a margin call, requiring the investor to deposit more money into their account to maintain the margin requirement.

  3. Holding the stock as collateral: The broker holds the purchased stock as collateral against the loan. If the investor fails to repay the loan, the broker can sell the collateral to recover the loan amount.

  4. Charging high rates of interest: Brokers charge interest on the loan amount used to purchase the stock on margin. This interest is a source of income for the broker and also serves as a deterrent for investors to not overuse margin trading.

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