When one investor borrows stock from another investor and then immediately sells it in the market,but with a promise to replace the stock at some later date,he or she has executed a transaction that is called ____.
A) Margin trading
B) Short selling
C) A hypothecation arrangement
D) "Going long"
E) An irregular transaction

Question

Quizplus · Accepted Answer

The described transaction is known as short selling, where an investor borrows stock, sells it in the market, and promises to replace it later. This is often done in anticipation of the stock's price going down, allowing the investor to buy the replacement shares at a lower price and pocketing the difference as profit. Margin trading (A) is a broader term that refers to borrowing funds to buy securities, including short selling. Hypothecation (C) refers to the pledging of securities as collateral for a loan. "Going long" (D) means buying securities with the expectation that their price will rise. "Irregular transaction" (E) is not a commonly used term in finance.

When One Investor Borrows Stock from Another Investor and Then