Potential loses are unbounded (unlimited): A :If the buyer of a long contract se

Question

Potential loses are unbounded (unlimited):

A

:If the buyer of a long contract sees the price of the underlying asset increase.

B

:If the buyer of a long contract sees the price of the underlying asset decrease.

C

:If the seller of a short contract sees the price of the underlying asset increase.

D

If the seller of a short contract sees the price of the underlying asset decrease.

A

:If the buyer of a long contract sees the price of the underlying asset increase.

B

:If the buyer of a long contract sees the price of the underlying asset decrease.

C

:If the seller of a short contract sees the price of the underlying asset increase.

D

If the seller of a short contract sees the price of the underlying asset decrease.

Explanation / Answer

C

:If the seller of a short contract sees the price of the underlying asset increase

reason:

In finance short selling (also known as shorting or going short) is the practice of sellingsecurities or other financial instruments that are not currently owned, with the intention of subsequently repurchasing them ("covering") at a lower price. In the event of an interim price decline, the short seller will profit, since the cost of repurchase will be less than the proceeds received upon the initial (short) sale. Conversely, the short seller will incur a loss in the event that the price of a shorted instrument should rise prior to repurchase. The potential loss on a short sale is theoretically unlimited in the event of an unlimited rise in the price of the instrument, however in practice the short seller will be required to post margin or collateral to cover losses, and any inability to do so on a timely basis would cause its broker or counterparty to liquidate the position.

C

:If the seller of a short contract sees the price of the underlying asset increase

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.