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Reading 73: Alternative Investments - LOSi(part 2)~Q1-4

 

LOS i, (Part 2): Describe the various classifications of hedge funds.

 

Q1. Hedge funds are usually classified by the media and hedge fund databases according to their:

A)   past performance.

B)   investment strategy.

C)   legal structure.

 

Q2. A hedge fund that takes perfectly offsetting long and short positions is best described as a(n):

A)   long/short fund.

B)   market-neutral fund.

C)   event-driven fund.

 

Q3. The largest category of hedge funds in terms of asset size is:

A)   market-neutral funds.

B)   global macro funds.

C)   long/short funds.

 

Q4. Which of the following statements regarding hedge funds is least accurate?

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

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

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

 

[2009]Session 18 - Reading 73: Alternative Investments - LOSi(part 2)~Q1-4

LOS i, (Part 2): Describe the various classifications of hedge funds. fficeffice" />

 

Q1. Hedge funds are usually classified by the media and hedge fund databases according to their:

A)   past performance.

B)   investment strategy.

C)   legal structure.

Correct answer is B)        

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.

 

Q2. A hedge fund that takes perfectly offsetting long and short positions is best described as a(n):

A)   long/short fund.

B)   market-neutral fund.

C)   event-driven fund.

Correct answer is B)        

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.

 

Q3. The largest category of hedge funds in terms of asset size is:

A)   market-neutral funds.

B)   global macro funds.

C)   long/short funds.

Correct answer is C)        

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

 

Q4. Which of the following statements regarding hedge funds is least accurate?

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

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

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

Correct answer is A)        

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

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