1.Exchange Traded Funds (ETFs) differ from closed-end country funds because ETFs:

A)   require an exchange specialist to act as a market maker, while country funds do not.

B)   require a financial institution to hold shares in a country, while country funds do not.

C)   adjust slowly to the fund’s underlying fundamental value, while country funds do not.

D)   adjust slowly to changes in market trading time zones, while country funds do not.

2.Arbitrage opportunities for investors are not generally available to Exchange Traded Funds (ETFs) because the ETF:

A)   traders engage in arbitrage opportunities that do not allow investors to profit from such opportunities.

B)   specialist holds all the foreign shares in its institution and does not allow the free trading of such shares to create arbitrage opportunities.

C)   brokers engage in arbitrage opportunities to ensure that the ETF’s NAV and the inventory of their foreign shares are closely aligned.

D)   exchange specialist engages in arbitrage opportunities to ensure that the ETF’s NAV and the listed shares are closely aligned.

3.A primary reason for trading in Exchange Traded Funds (ETFs) is that ETFs can:

A)   be shorted and margined.

B)   create arbitrage opportunities for astute investors.

C)   increase international diversification with high liquidity at higher costs.

D)   increase tax efficiency due to higher portfolio turnover.

1.Exchange Traded Funds (ETFs) differ from closed-end country funds because ETFs:

A)   require an exchange specialist to act as a market maker, while country funds do not.

B)   require a financial institution to hold shares in a country, while country funds do not.

C)   adjust slowly to the fund’s underlying fundamental value, while country funds do not.

D)   adjust slowly to changes in market trading time zones, while country funds do not.

The correct answer was A)

Exchange specialists act as market makers for ETFs. The ETF specialist is considered to be an authorized participant by the ETF-sponsored fund companies. Acting as an authorized agent, the specialist engages in arbitrage opportunities to ensure that the ETF’s net asset value (NAV) and the listed price are closely aligned. The specialist will post bid and ask prices with very narrow spreads in the electronic order book to ensure close pricing between the ETF and the underlying NAV.

Closed-end country funds do not have any of the above characteristics.

2.Arbitrage opportunities for investors are not generally available to Exchange Traded Funds (ETFs) because the ETF:

A)   traders engage in arbitrage opportunities that do not allow investors to profit from such opportunities.

B)   specialist holds all the foreign shares in its institution and does not allow the free trading of such shares to create arbitrage opportunities.

C)   brokers engage in arbitrage opportunities to ensure that the ETF’s NAV and the inventory of their foreign shares are closely aligned.

D)   exchange specialist engages in arbitrage opportunities to ensure that the ETF’s NAV and the listed shares are closely aligned.

The correct answer was D)

Acting as an authorized agent, the ETF exchange specialist engages in arbitrage opportunities to ensure that the ETF’s net asset value (NAV) and the listed price are closely aligned. The specialist will post bid and ask prices with very narrow spreads in the electronic order book to ensure close pricing between the ETF and the underlying NAV.

3.A primary reason for trading in Exchange Traded Funds (ETFs) is that ETFs can:

A)   be shorted and margined.

B)   create arbitrage opportunities for astute investors.

C)   increase international diversification with high liquidity at higher costs.

D)   increase tax efficiency due to higher portfolio turnover.

The correct answer was A)

Some advantages of utilizing ETFs are.

§ ETFs achieve international diversification with high levels of liquidity at a minimal cost.

§ ETFs are tax efficient due to very low portfolio turnover.

§ ETF can be shorted and margined.