CFA Practice Question
All short sales ______
II. require the seller to post margin over and above the short sale proceeds.
III. are completed with no collateral contribution from the short seller.
I. deposit the proceeds in a margin account.
II. require the seller to post margin over and above the short sale proceeds.
III. are completed with no collateral contribution from the short seller.
A. I and II
B. I and III
C. I, II and III
Explanation: The proceeds of the short sale must remain with the broker in the margin account as security to repurchase the stock later. An additional margin for security against losses must be submitted by the short seller. This amount can be invested in highly liquid securities to earn a return for the investor but must be available to the broker in case of an emergency liquidation.
User Contributed Comments 3
| User | Comment |
|---|---|
| murli | III is wrong because the amount in margin account with the broker is the collateral! |
| iceluke | p.250 |
| CoffeeGirl | The proceed is the collateral |