Previous Year Question
In the parlance of financial investments, the term ‘bear’ denotes:
an investor who feels that the price of a particular security is going to fall.
an investor who expects the price of particular shares to rise.
a shareholder or a bondholder who has an interest in a company, financial or otherwise.
any lender whether by making a loan or buying a bond.
Correct Answer: A
Detailed Solution
A bear is an investor who expects the price of a particular security, a sector or the overall market to decline. Such a view is described as a bearish outlook.
Anticipating a fall, the investor may sell securities already held.
Subject to applicable rules, the investor may also take a short position, which can produce a gain if the price falls.
If the price rises contrary to the expectation, a short-position holder may suffer a loss.
Option (b) describes a bull—an investor who expects share prices to rise.
Option (c) merely describes the status of a shareholder or bondholder. Holding a security does not automatically make the person a bear. Similarly, option (d) defines a lender or creditor and does not necessarily involve an expectation of falling security prices.
A bear refers to an investor’s outlook, whereas a bear market is a broader market phase characterised by falling stock prices and a negative investor outlook.