2016-FRR Exam Dumps | Short-selling is typically associated with the following risks: I. Potential for extreme losses II. Risk

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GARP.2016-FRR.v2024-09-09.q145
Question 4

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Question 4/145

Short-selling is typically associated with the following risks:
I. Potential for extreme losses
II. Risk associated with the availability of shares to borrow
III. Market behavior risk
IV. Liquidity risk

A. I, II

B. I, III

C. II, IV

D. I, II, III, IV

Correct Answer: D

Short-selling is associated with several risks:
* Potential for extreme losses: If the price of the shorted asset increases significantly, the losses can be unlimited.
* Risk associated with the availability of shares to borrow: Short-sellers need to borrow shares to sell them, and there may be situations where shares are not available.
* Market behavior risk: Market conditions can change rapidly, affecting the prices of shorted assets.
* Liquidity risk: Short-sellers may face difficulty in covering their positions if the market lacks sufficient liquidity.

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