PRMIA Exam 8006 Topic 6 Question 89 Discussion

Actual exam question for PRMIA's Exam I: Finance Theory, Financial Instruments, Financial Markets ? 2015 Edition exam

Question #: 89
Topic #: 6

[All Exam I: Finance Theory, Financial Instruments, Financial Markets ? 2015 Edition Questions]

A 'short squeeze' refers to a situation where

Aa sharp increase in spot prices due to a shortage in the spot market as shorts try to cover their positions

Ba sharp drop in spot prices as shorts try to drive down prices

Csharp swings in forward basis caused due to normal market movements

Dan increase in forward prices due to factors underlying a contango market overwhelming the factors that take the market into backwardation

Show Suggested Answer

Suggested Answer: A

A short squeeze results when short sellers are trying to cover their short positions by buying in the spot markets, which do not have adequate supply. This results in sharp spikes in spot prices, which further forces any other shorts to try cut their losses. The result is a sharp rise in spot prices.

Choice 'a' is the correct answer, the other choices do not describe a short squeeze.

by Theodora at May 28, 2024, 08:19 PM

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Justine

2 months ago

This 'short squeeze' thing sounds like a fancy way of saying 'when the market turns against you.' Option A is my pick.

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Raylene

2 months ago

I think it's when spot prices increase due to shorts trying to cover their positions.

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Maryanne

2 months ago

I agree, a 'short squeeze' can really catch traders off guard.

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Kirby

2 months ago

A sharp increase in spot prices due to shorts covering? Sounds like a financial version of a 'hot potato' game to me. Option A gets my vote.

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Lisha

2 months ago

Lashawnda: That's why option A makes the most sense, shorts scrambling to cover their positions.

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Lashawnda

2 months ago

User 2: Definitely, it's all about trying to avoid being left holding the bag.

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Luke

2 months ago

User 1: I agree, it does seem like a game of hot potato with stocks.

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Allene

3 months ago

Hmm, I'm not sure. Option A does sound the most plausible, but I'll have to think this one through a bit more.

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Kerry

2 months ago

It's always good to take your time and think things through before making a decision.

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Vincenza

2 months ago

Short squeezes can definitely cause a sharp increase in spot prices.

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Providencia

2 months ago

I think you're on the right track with option A.

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Sylvia

3 months ago

I agree with Alexis, because when shorts try to cover their positions, it can lead to a sharp increase in spot prices.

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Alexis

3 months ago

I think a 'short squeeze' refers to A) a sharp increase in spot prices due to a shortage in the spot market as shorts try to cover their positions.

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Derick

3 months ago

A short squeeze? More like a 'short leap of faith' if you ask me. Option A seems like the clear winner here.

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Laurel

2 months ago

Yeah, shorts trying to cover their positions can really drive up prices quickly.

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Angelyn

2 months ago

I agree, a short squeeze can definitely lead to a sharp increase in spot prices.

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Yvette

2 months ago

Short squeezes can really shake up the market, it's all about those spot prices rising due to shortages.

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Hyun

2 months ago

I agree, option A is definitely the most likely scenario in a short squeeze.

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Vincenza

2 months ago

Short squeezes can definitely lead to sharp increases in spot prices due to shortages.

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Lavera

3 months ago

I agree, option A is the most likely scenario in a short squeeze.

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