A Level History - America - Practice Exam

What financial practice involved investing in shares with borrowed money?

1. Asset liquidation

2. Buying on credit

3. Margin buying

4. Short selling

The correct answer is: Margin buying

Margin buying is the correct answer because it refers specifically to the practice of purchasing shares using borrowed funds. In margin buying, investors take out a loan from a brokerage to buy more stock than they could with just their available capital, allowing them to leverage their investments. This can amplify both potential gains and losses, making it a high-risk strategy. Other practices mentioned do not involve the same use of borrowed funds for investment in shares. For instance, buying on credit generally pertains to the purchase of goods or services with borrowed money but does not specifically relate to investing in stocks. Asset liquidation involves selling off assets to raise capital and is not about investment strategies. Short selling, while also a method of trading, involves borrowing shares to sell them in anticipation of a price drop and does not pertain to the act of buying shares with borrowed money.