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You are a principal trader. Your trading limit is 10,000 shares. Your current position is short 9,000 shares. A client wishes to buy 10,000 shares from you. From only the choices below, what price should you make? Select one • a. An offer that is slightly lower than the current market offer • b. An offer that is slightly higher than the current market offer • c. A bid that is slightly lower than the current market bid • d. A bid that is slightly higher than the current market bid O e. A bid that is slightly lower than the current market offer

Question

You are a principal trader. Your trading limit is 10,000 shares. Your current position is short 9,000 shares. A client wishes to buy 10,000 shares from you. From only the choices below, what price should you make? Select one • a. An offer that is slightly lower than the current market offer • b. An offer that is slightly higher than the current market offer • c. A bid that is slightly lower than the current market bid • d. A bid that is slightly higher than the current market bid O e. A bid that is slightly lower than the current market offer

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Solution

b. An offer that is slightly higher than the current market offer

Explanation: As a principal trader, you are trading from your own account. You are currently short 9,000 shares, meaning you have sold shares you do not own with the expectation that the price will fall. Now, a client wants to buy 10,000 shares from you. You only have 1,000 shares left in your trading limit. Therefore, you would need to buy back the shares you are short on to fulfill this order. To make a profit, you would want to sell these shares at a price that is slightly higher than what you bought them for, hence an offer that is slightly higher than the current market offer.

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