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    The Short-Selling Process and Short-Interest Ratio

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    Can you please describe the short selling process. Explain the short interest ratio.

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    Solution Preview

    Usually, an investor will buy shares of stock and sell them later. The investor hopes that the stock price will increase between the date of the purchase and the date of the sale, resulting in a net profit. However, short selling works the opposite way: The investor borrows stock from a broker, sells it at the current market price, and replaces the loaned stock later. The investor hopes that the stock drops in value so that the investor's profit will be ...

    Solution Summary

    This solution details the short-selling process as well as the computation of the short-interest ratio.