SIE Understanding Trading, Customer Accounts and Prohibited Activities Question 66: Answer and Explanation

Question: 66

Which of the following statements is true regarding a cash account?

• A. Only cash may be held in the account.
• B. All transactions must be paid for in full.
• C. Purchases may be made on margin, but no short selling is allowed
• D. Short selling is allowed, but the cash must not be used to purchase any other investments.

Correct Answer: B

Explanation:

B: Choice B is correct because a cash account may not be used to purchase investments by borrowing part of the purchase price. Choice A is incorrect because investments other than cash may be held in a cash account. Choice C is incorrect because no purchases on margin may be made in a cash account. Choice D is incorrect because the short sales may not be made in a cash account.