Reading 73: Alternative Investments Losi习题精选 2010, statements, following, structure

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LOS i: Define hedge fund in terms of objectives, legal structure, and fee structure, and describe the various classifications of hedge fun。

Which of the following statements describing hedge funds is least accurate? Most hedge funds:

A) are exempt from most securities regulations.

B) use hedging techniques to reduce risk.

C) are available to only a limited number of qualified investors.

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The term “hedge fund” is an inaccurate description of the investment class because these funds may or may not employ hedging techniques. Most hedge funds are organized so as to remain exempt from most securities regulations. Participation typically requires a large minimum investment and is limited to small numbers of qualified investors.

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To avoid most SEC regulations, hedge funds organized in the United States typically operate within all of the following guidelines EXCEPT hedge:

A) funds may accept a maximum number of investors.

B) fund managers are prohibited from advertising or marketing the fund.

C) fund investments by individuals are limited to a maximum of $500,000.

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Hedge funds organized under section 3(c) (7) of the Investment Company Act may not advertise, must limit the number of investors to 500, and may only accept “qualified” investors, as defined by the Act. Hedge funds investments are not subject to a maximum amount.

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Managers of hedge funds are typically compensated by:

A) a base management fee, based on the value of assets under management, plus an incentive fee, based on profits.

B) an incentive fee, paid only if performance exceeds a “high water mark”.

C) a management fee, based on the net change in value of the assets during the year.

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Typical arrangements pay the manager a base fee, usually around 1% of assets, plus an incentive fee proportional to profits.

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Hedge funds operating in the United States that abide by certain guidelines:

A) can utilize certain hedging strategies.

B) gain exemption from most SEC regulations.

C) may advertise to “accredited” investors.

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Hedge funds may not engage in advertising of any kind. Hedge funds may or may not utilize hedging strategies. The main reason for hedge funds to organize under section 3(c)(1) is to gain exemption from most SEC regulations.

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Hedge funds are usually classified by the media and hedge fund databases according to their:

A) past performance.

B) legal structure.

C) investment strategy.

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The past performance of a hedge fund and legal structure are typically not criteria used in classifying hedge funds. Hedge funds are usually classified investment strategy, although the system is somewhat subjective and there is substantial overlap between categories.

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A hedge fund that takes perfectly offsetting long and short positions is best described as a(n):

A) long/short fund.

B) event-driven fund.

C) market-neutral fund.

Market-neutral funds take long and short positions but attempt to offset them to hedge against market moves. Long/short funds take both long and short positions but do not try to offset them. Event-driven funds focus on unique market opportunities, not offsetting positions.

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The largest category of hedge funds in terms of asset size is:

A) market-neutral funds.

B) global macro funds.

C) long/short funds.

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Long/short funds are considered to be the “traditional” type of hedge funds, and they represent the largest category of hedge funds.

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Which of the following statements regarding hedge funds is least accurate?

A) Global macro funds make bets on the direction of a market, currency or interest rate.

B) Market-neutral hedge funds may have long and/or short positions.

C) Long/short funds have a net market neutral position.

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Long/short funds, by definition, are not market-neutral and usually maintain a net positive or net negative market exposure.