Dealers also have to be compensated for bearing risk. A dealer's position may involve carrying inventory of a security (a long position) or selling a security that is not in inventory (a short position). There are three types of risks associated with maintaining a long or short position in a given security. Two of these include ________.

Question

Quizplus · Accepted Answer

The two types of risks associated with maintaining a long or short position in a security are the uncertainty about the future price of the security and the expected time it will take the dealer to unwind a position and its uncertainty. The risk of trading with someone who has inferior information is not directly related to maintaining a long or short position in a security. Therefore, option A and C are incorrect. Option D is also incorrect as it mentions the certainty of the future price, which is not a risk associated with maintaining a long or short position in a security.

Dealers Also Have to Be Compensated for Bearing Risk