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Reading 76: Alternative Investments -LOS i, (Part 2)~ Q1

1Hedge funds are usually classified by the media and hedge fund databases according to their:

A)   past performance.

B)   portfolio manager.

C)   legal structure.

D)   investment strategy.

2Which of the following statements regarding hedge funds is FALSE?

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

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

C)   Event-driven hedge funds seek to capitalize on a unique opportunity in the market.

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

3e largest category of hedge funds in terms of asset size is:

A)   market-neutral funds.

B)   global macro funds.

C)   long/short funds.

D)   event-driven funds.

4A hedge fund that takes perfectly offsetting long and short positions is best described as a(n):

A)   market-neutral fund.

B)   long/short fund.

C)   event-driven fund.

D)   global macro fund.

1Hedge funds are usually classified by the media and hedge fund databases according to their:

A)   past performance.

B)   portfolio manager.

C)   legal structure.

D)   investment strategy.

The correct answer was D)

The past performance of a hedge fund, its portfolio manager, 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.

2Which of the following statements regarding hedge funds is FALSE?

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

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

C)   Event-driven hedge funds seek to capitalize on a unique opportunity in the market.

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

The correct answer was A)

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

3e largest category of hedge funds in terms of asset size is:

A)   market-neutral funds.

B)   global macro funds.

C)   long/short funds.

D)   event-driven funds.

The correct answer was C)

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

4A hedge fund that takes perfectly offsetting long and short positions is best described as a(n):

A)   market-neutral fund.

B)   long/short fund.

C)   event-driven fund.

D)   global macro fund.

The correct answer was A)

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. Global macro funds bet on the direction of a market, currency, interest rate, or other factor; they don’t try to offset positions to cancel out market effects. Event-driven funds focus on unique market opportunities, not offsetting positions.

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