Ernest was a stockbroker in the United States in the 1920s. He would buy stocks worth $5000 by investing $800 and taking a loan from a bank to make the rest of the payment. However, when his stock prices would plummet, he would repay the loan on demand by the bank. Which of the following types of loans does this scenario illustrate?

Question

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This scenario illustrates a "call loan," which is a type of loan where the lender can demand full repayment at any time. In the context of stock trading during the 1920s, brokers like Ernest would often use call loans to finance the purchase of stocks, with the understanding that the loan could be called in by the bank at any time, especially if the value of the collateral (the purchased stocks) fell.

Ernest Was a Stockbroker in the United States in the 1920s