Short selling is a technique used by investors who try to profit from the:

• A. Falling price of a stock
• B. Rising price of a stock
• C. Stable price
• D. High dividend yield

Answer: (A)

Short selling aims to profit when a stock’s price falls. The process involves borrowing shares and selling them at the current price, with the obligation to buy back the same number of shares later. If the price declines, you can repurchase at the lower price, return the borrowed shares, and keep the difference (after costs). If the price rises, losses can grow because you’d have to buy back at a higher price. Dividends on the borrowed shares also add to costs during the period you hold the short. So the strategy is specifically about benefiting from a drop in price, not from a rise, a stable price, or a high dividend yield.