12 – Short Selling

Objective Questions

1. Short-selling is preferred by traders based on the expectation that the
a. Price of the security will go up.
b. Price of the security will go down.
c. Price of the security will remain stable.
d. None of the above.

2. The strategy allowing the investor to gain from the decline price of security includes
a. Buying call options.
b. Selling call options.
c. Buying put options.
d. None of the above.

3. The process of buying back the shares that are sold short is called
a. Buy to square off.
b. Buy to cover.
c. Buy back to cover.
d. None of the above.

4. A short sale followed up with proper delivery of shares after borrowing is referred to as a
a. Regular short sale.
b. Naked short sale.
c. Sale on delivery.
d. None of the above.

5. A short sale not followed up with proper delivery of shares within the standard three day settlement period is referred to as a
a. Regular short sale.
b. Naked short sale.
c. Sale on delivery.
d. None of the above.

6. In short-selling there is no potential for
a. Dividend income.
b. Return from capital gains.
c. Profit on sale.
d. All of the above.

7. The action of lending the security of one person to another is referred to as a
a. Security transfer.
b. Corporate action.
c. Security lending.
d. None of the above.

8. When the collateral provided by the buyer to the lender is in the form of cash, the fee is referred to as
a. Brokerage.
b. Rebate.
c. Lending fee.
d. None of the above.

9. The permitted purposes of stock borrowing include
a. To facilitate settlement of trade.
b. To facilitate delivery of short sale.
c. To finance the security.
d. All of the above.

10. Which of the following persons is not a participant in security lending?
a. Borrowers.
b. Agent lenders.
c. Brokers.
d. All of the above.

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