Question

Regulation U governs _______________.

1) tax reporting of foreign dividend income
2) procedures to be followed under the Community Reinvestment Act
3) credit extended by banks to investors for the purpose of purchasing securities
4) electronic funds transfer

Answer 1

Regulation U governs credit extended by banks to investors for the purpose of purchasing securities.

Step-by-step explanation:

Regulation U governs credit extended by banks to investors for the purpose of purchasing securities.

Regulation U, also known as the Securities Credit Regulation, is a Federal Reserve Board regulation that sets out the conditions under which banks can extend credit to customers for the purpose of purchasing securities. This regulation is intended to ensure that banks are not taking excessive risk when extending credit for these types of transactions.

For example, under Regulation U, banks are required to maintain a margin of 50% on loans made to customers for the purpose of purchasing securities. This means that the borrower must provide at least 50% of the purchase price in cash or other eligible collateral, while the remaining 50% can be borrowed from the bank.