Brooklyn College Naked Short Selling Economy Questions Discussion

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Business Finance

Brooklyn College

Question Description

NAKED SHORT SELLING

Overview

The declining values in Fannie Mae and Freddie Mac stocks

in 2007–2008 were the result of risky mortgages and foreclo-

sures. This led to a surplus of declining real property values

in the United States and a significantly negative impact on

equity prices and financial markets in the United States and

around the world. It’s likely that this topic will be studied

for many years, as Alan Greenspan, former Federal Reserve

Chairman, has referred to it as a once-in-a-century “financial

tsunami.”

On the following page are graphic representations of the stock

price per share for Fannie Mae (FNM) (Figure 1) and Freddie

Mac (FRE) (Figure 2), the holders of approximately 50 percent

of the mortgages in the United States.

Instructions

Read the boxed article, “Reinflating Real Property Values,”

by A. J. Cataldo and Anthony P. Curatola, from Strategic

Finance, October 2008. Then respond to the questions that

follow. Feel free to use Google, Wikipedia, or any other reliable

Internet sources for your research. Be sure to verify your

answers by checking multiple sources.

Brooklyn College Naked Short Selling Economy Questions Discussion
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Question one
GSE (government-sponsored enterprise) is a quasi-government entity that is established
for enhancing credit flow to specific sectors of the American economy. Even though GSEs are
privately held, the U.S. Congress created them to provide the public with financial services
(Doyle, 2000). They help to facilitate the borrowing of funds by different individuals, including
students, farmers, homeowners, etc.
Question two
a)

A long position in the stock is the buying of stock with the expectation that the

stock's value will increase (Chen, 2020). Those who opt for a long position in stock are usually
thought of as having a bullish attitude.
b)

A short position in the stock is created whenever a trader of stocks sells stocks

with the intention of repurchasing them or covering them later at a lower price (Chen, 2020).
Traders usually short their stocks when they believe that the price of the stock is likely to
decrease in the near future.
c)

A naked short position in stock occurs when a trader of stocks sells stocks that

they do not possess. However, in the United States, the naked short practice is illega...

Puhpxf574 (16366)
University of Maryland

Anonymous
Really useful study material!

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