PSI Virginia Real Estate Practice Exam

What is the purpose of a short sale in finance?

1. To sell owned assets for profit

2. To sell shares not currently owned

3. To gain equity in a property

4. To balance income and debt

The correct answer is: To sell shares not currently owned

A short sale in finance typically involves selling shares that the seller does not currently own, with the intention of buying them back at a lower price. This practice allows the seller to profit from a decline in the value of the asset. In a short sale, the seller borrows shares from a broker to sell on the market, hoping to buy them back at a lower price before returning them to the lender. This strategy is often employed when an investor anticipates that the market or a specific stock will decrease in value. While this practice primarily pertains to selling shares, it’s important to distinguish it from other financial terms or strategies. Selling owned assets for profit, gaining equity in a property, or balancing income and debt don't encapsulate the core purpose of what is defined as a short sale in this context. Each of those alternatives describes different financial activities that do not align specifically with the mechanics and intent of a short sale transaction.