PRMIA Exam 8006 Topic 6 Question 89 Discussion

Actual exam question for PRMIA's 8006 exam

Question #: 89
Topic #: 6

[All 8006 Questions]

The forward price of a physical asset is affected by:

Athe spot price, the risk-free rate, carrying costs, any other cash flows from holding the asset and the volatility of spot prices

Bthe spot price, the risk-free rate, carrying costs, any other cash flows from holding the asset and the time to maturity of the forward contract

Cthe spot price, the risk-free rate, carrying costs and any other cash flows from holding the asset

DThe spot price of the asset and the market's prevailing view of the commodity's direction in the future

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

10 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

9 months ago

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

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Maryanne

10 months ago

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

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Kirby

10 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

9 months ago

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

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Lashawnda

9 months ago

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

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Luke

10 months ago

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

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Allene

10 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

9 months ago

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

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Vincenza

10 months ago

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

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Providencia

10 months ago

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

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Sylvia

11 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

11 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

11 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

10 months ago

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

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Angelyn

10 months ago

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

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Yvette

10 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

10 months ago

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

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Vincenza

10 months ago

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

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Lavera

10 months ago

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

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