Speculation, Credit and Risk Flashcards

In the 1920s, what did ‘speculation’ on the stock market mean?

Buying shares to sell quickly for a profit, not to hold for the long term.

What was ‘buying on the margin’?

Paying a small deposit for shares and borrowing the rest. If prices fell, you still owed the loan.

How did easy credit help fuel the stock market boom?

Cheap loans let more people buy shares, pushing prices up faster than company profits.

What is a ‘call loan’ or ‘broker’s loan’?

A short-term loan to buy shares that the lender could demand back at any time.

How did margin calls make the crash worse in October 1929?

Falling prices led brokers to demand more cash. Many sold shares to pay, so prices fell further.

Why was the US banking system risky in the 1920s?

Many small banks had little cash and few rules. They lent for share deals and could not cope with losses.

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Why was there no safety net for savers when banks failed?

There was no deposit insurance, so people could lose all their savings.

How did hire purchase increase risk in the economy?

People bought goods on credit and built up debt. When times grew hard, they cut spending to repay.

What is the difference between investment and speculation?

Investment is long-term and based on profits. Speculation is short-term and bets on rising prices.

Why were share prices in 1928–1929 often too high?

Demand from speculators and easy credit pushed prices above the real value of companies.

How did a rise in interest rates in 1928 affect speculation?

Borrowing cost more, so some sold shares to repay loans. This helped push prices down.

What role did weak regulation play in the 1920s stock market?

There were few rules on trading and lending, so risky schemes and price rigging could spread.

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