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March 24, 2019

Exam - What is Short Selling?

1. What is the philosophy behind short selling?

a) Buy low, sell high
b) Sell high, buy low
c) Sell low, buy high
d) Buy high, sell low

2. After you short a stock, you have the:

a) Right to buy it back at a later date
b) Obligation to buy it back at a later date
c) Right to sell it at a later date
d) Obligation to sell it at a later date

3. A short sale of stock must take place on a(n):

a) Uptick
b) Downtick
c) Bid price
d) Asking price

4. You shorted 400 shares of stock at $70 and bought them all back at $68. What is your total profit?

a) $800
b) $200
c) $400
d) $600

5. You shorted 100 shares of stock at $60 and deposited the minimum 150% margin. Later, the stock rises to $63. What is your equity percent?

a) 35%
b) 52%
c) 42%
d) 47%

6. What is the biggest risk in short selling stock?

a) Stock prices can rise by an unlimited amount
b) You are bound by the uptick rule
c) You are bound by the downtick rule
d) Stock prices can fall down to zero

7. You shorted 300 shares at $40 and placed the minimum 150% margin requirement. Later the stock rises to $47.00 per share. How much cash do you need to deposit to get your account to 30% equity?

a) $407
b) $330.00
c) $422.30
d) $418.75

8. What is the formula for equity percent for short sales?

a) Equity/credit balance
b) Credit balance/equity
c) Equity/MVS
d) MVS/equity

9. A short sale "at market":

a) Could possibly not get filled
b) Must get filled
c) Can only get filled at the asking price
d) Can only get filled at the bid price

10. Why do U.S. markets allow short selling?

a) Short selling adds risk
b) Short selling makes prices more efficient and fair
c) Short selling generates more commissions
d) Short selling makes it easier to day trade

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