Short selling is the practice of borrowing stock then selling it with the expectation that its price will fall further so that it can be repurchased and the stock returned to the lender
The difference in the price sold initially and the price that it was subsequently purchased represents profits for short sellers. Discuss the risks taken by such individuals. What kind of risk profile do short sellers exhibit.
Essentially the risk that short sellers are taking is that they could be wrong. Instead of the stock price continuing to fall it could actually rise. The risk is theoretically at least completely open –ended since the price could rise substantially and the short seller would end up having to buy back the "borrowed" stock at a much higher price then he sold it for in order to return it to the lender. This is clearly a risk-loving type of behavior.
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When the Federal Reserve sells treasury securities in the open market,
A. The buyers of these securities pay for them with checks and bank reserves fall B. The buyers of such securities by new securities in the open market and there is a decrease in bank reserves C. The sellers of such securities deposit the funds in their banks and bank reserves decrease
Everything else held constant, an increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________
A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease