Ans – (a)
The margin requirement refers to the difference between the current value of the security offered for a loan (called collateral and the value of the loan granted.
Suppose, a person mortgages his house worth ₹ 1 crore with the bank for a loan of ₹ 80 lakh.
The margin requirement in this case would be ₹ 20 lakh.
The margin requirement is raised when the supply of money needs to be reduced.
The margin requirement is lowered when the supply of money is to be increased.
Effect of Margin Requirement:-
Rise in Margin Requirement:- Fall in demand for credit – Fall in supply of money by the commercial banks – Fall in money supply – Inflation is controlled
Fall in Margin Requirement:- Rise in demand for credit – Rise in supply of money by the commercial banks – Rise in money supply – Deflation is controlled