Escrow Agreement
What It Is:
An escrow agreement is a certificate from an approved bank guaranteeing that an indicated financial security is deposited at that particular bank.
How It Works/Example:
John writes a call option for stock in company ABC. When John presents the escrow agreement to the bank, he is considered to have covered the asset. As a result, John will not have to meet margin call requirements at the bank.
Why It Matters:
Escrow agreements offer investors a safety net in the event of margin calls.
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Cached on May 23, 2012, 6:04 pm