Which statement best describes one of the main differences between short and long transactions?
A.
In a long transaction, the investor must pay the broker the cost of repurchasing the shares
B.
Short transactions are more common than long transactions
C.
Short sales must result in a decline in the price of the stock that is sold short
D.
Investors using long transactions anticipate a price increase in the security
The Answer Is:
D
This question includes an explanation.
Explanation:
Long transactions involve buying a security with the expectation that its price will increase, while short transactions involve borrowing and selling a security with the hope of buying it back at a lower price. The feedback from the document states:
"Short transactions are a common feature of the capital markets, although not as common as long transactions – the transactions taken by investors who anticipate a price increase in the security. Investors who short sell stocks must first borrow the shares. They must also declare their short transactions."
[Reference: Chapter 7 – Types of Investment Products and How They Are TradedLearning Domain: Understanding Investment Products and Portfolios, , , ]
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