Final answer:
A brokerage firm requesting more collateral for loans given to investors buying stocks is initiating a margin call, which occurs when the value of the margin account drops below the firm's required threshold.
Step-by-step explanation:
When a brokerage firm demands more collateral from investors who have borrowed from the brokerage to buy stocks, it is making a margin call. A margin call occurs when the value of the stocks declines, and the investor's equity falls below the brokerage firm's required margin. In order to protect themselves from potential losses, brokerage firms require investors to deposit additional funds or securities as collateral.
A margin call occurs when the value of an investor's margin account falls below the brokerage's required amount. To meet the margin call, investors must deposit more funds or securities to increase their account balance to the required level. This situation often arises in a bear market when stock prices are falling. If the securities purchased on margin decrease in value, investors are at risk of losing their invested equity and may still owe the original borrowed amount. This practice of buying on margin is an example of the leverage investors can use to amplify their buying power, which can lead to high returns, but also involves higher risk.