A:

A. approve the client for "hot" IPOs.

B.
hold the margined securities in a street name loan - using the securities as collateral for other means (i.e. bank loans and short sales of other customers).



C. hold margined securities in mutual fund accounts and keep the dividends.



D. invest the client's proceeds from hypothetical dividends.



Answer: B
The Hypothecation agreement is an addendum to the margin agreement, and more often than not, is required by broker-dealers.



RELATED FAQS
  1. How exactly does buying on margin work and why is it controversial?

    Learn how purchasing stock on margin works, and understand the risk associated with margin accounts that make the strategy ... Read Answer >>
  2. What is the interest rate offered on a typical margin account?

    Learn about the basics of trading on margin accounts, specifically the rate of interest that is typically charged for margin ... Read Answer >>
  3. Margin accounts are established to allow investors the ability to use leverage with ...

    The correct answer is a): A margin account allows you to buy additional securities by leveraging the value of your eligible ... Read Answer >>
  4. What does it mean when I get a maintenance margin call?

    Understand how maintenance margin calls work, and learn about how margin requirements are different for trading stock versus ... Read Answer >>
  5. Do you have to sell your stocks when you get a margin call?

    Understand the implications of a margin call and what an investor's options are when the stock he purchased on margin falls ... Read Answer >>
  6. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... Read Answer >>
Related Articles
  1. Options & Futures

    Margin Trading: What Is Buying On Margin?

    The Basics Buying on margin is borrowing money from a broker to purchase stock. You can think of it as a loan from your brokerage. Margin trading allows you to buy more stock than you'd be able ...
  2. Trading Strategies

    Margin Investing Gets A Bad Rap, But For The Thrill-Seeker, It's Worth It

    Investing on margin can be profitable but it's a risky play that needs care.
  3. Mutual Funds & ETFs

    Securities Lending: Cause Of The Next Financial Crisis?

    Securities lending can pose risks to investor's portfolios and the entire financial system.
  4. Credit & Loans

    What Is Collateral?

    Collateral is property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup ...
  5. Active Trading Fundamentals

    Short Selling: Why Short?

    Generally, the two main reasons to short are to either speculate or to hedge. When you speculate, you are watching for fluctuations in the market in order to quickly make a big profit off of ...
  6. Credit & Loans

    5 Tips For Getting Your Bank Loan Approved

    Find out how to present the perfect, complete package for your lender and increase your chances of gettinga loan approved.
  7. Active Trading Fundamentals

    Explaining Initial Margin

    Initial margin is the percentage of a stock’s price an investor must have in his account to buy that stock on margin.
  8. Economics

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  9. Investing Basics

    A Primer On Collateralized Debt Obligation (CDOs)

    A collateralized debt obligation, or CDO, is a structured financial product backed by a pool of loans. When a retail or commercial bank approves loans such as mortgages, auto loans or credit ...
  10. Options & Futures

    Leveraged Investment Showdown

    Margin loans, futures and ETF options can all mean better returns, but which one should you pick?
RELATED TERMS
  1. Call Loan Rate

    The short term interest rate charged by banks on loans extended ...
  2. Hypothecation

    The established practice of a borrower pledging an asset as collateral ...
  3. Margin Loan Availability

    1. The dollar amount in an existing margin account that is currently ...
  4. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin ...
  5. Active Box

    A physical location in a brokerage where securities are kept. ...
  6. Collateral

    Property or other assets that a borrower offers a lender to secure ...
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center