CISI Professional Practice Exam 2025 – Complete Prep Guide

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What is defined as "short selling" in the financial markets?

Selling assets without owning them first

Buying securities at a lower price than sold

Selling borrowed securities with plans to repurchase them later

The definition of "short selling" in the financial markets is accurately captured by the description of selling borrowed securities with plans to repurchase them later. In a short sale, an investor borrows shares of a stock they do not own, selling them on the open market with the hope that the stock's price will decline. Once the price drops, the investor plans to buy back the shares at this lower price, return them to the lender, and pocket the difference as profit.

This strategy capitalizes on the anticipated decline in the asset's value. By short selling, an investor can profit from a falling market, in contrast to traditional investing, which typically aims to profit from rising asset prices. This simplifies the concept of short selling, clarifying its mechanics and purpose within the financial markets.

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Exchanging stocks without monetary exchange

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