PRMIA Exam 8006 Topic 7 Question 12 Discussion

Actual exam question for PRMIA's Exam I: Finance Theory, Financial Instruments, Financial Markets ? 2015 Edition exam

Question #: 12
Topic #: 7

[All Exam I: Finance Theory, Financial Instruments, Financial Markets ? 2015 Edition Questions]

The Federal Reserve tries to limit margin trading using which of the following techniques?

ASetting a maximum leverage ratio as a multiple of capital posted for margin trading

BBy using the discount window

CBy using open market operations to mop up extra liquidity in the system

DSetting limits on margin trading is not a part of the Federal Reserve's remit.

Show Suggested Answer

Suggested Answer: A

In the US, the Federal Reserve sets a limit (eg, 2 x, so that only 50% of the money could be borrowed) as a multiple of capital posted to prevent excessive leverage or gearing in the system.

The other choices are incorrect.

by Xuan at May 07, 2022, 12:06 PM

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