George Go, CFA, a U.S. domestic investor, wishes to diversify his domestic portfolio. Which of the following investment alternatives offer the lowest diversification benefit primarily because of its high correlation to U.S. markets?
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One of the primary disadvantages of a closed-end fund is that its NAV may be highly correlated with the U.S. stock market, which reduces the benefit of international diversification.
George Go, CFA, a U.S. domestic investor, wishes to diversify his domestic portfolio. Which of the following investment alternatives offers the most advantageous cost structure?
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ETF’s have a lower cost structure than mutual funds since they do not have shareholder accounting expenses.
Which of the following investment alternatives to direct country investing create the most attractive arbitrage opportunities by trading in different time zones?
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One of the primary disadvantages of open-end country funds is that trade timing problems across different time zones can create arbitrage opportunities for astute investors. Open-end fund investors must redeem their shares by noon U.S. Eastern Standard Time due to the international market closings. The settlement for the redeemed shares occurs once the NAV for the fund is determined at the close of the domestic market exchange. The time lag between the international market closings, redemptions, and NAV determination creates cash flow problems for managers and opportunities for arbitrageurs.
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