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cfai mock morning #109

How is the answer b and not c?
How many distressed funds do you know short stock? The stocks are already distressed and they buy the debt anyway.
China could be classified as an emerging market. Shorting chinese stocks would be perfectly reasonable.

I agree. All types of funds would short distressed securities, but a distressed security fund would BUY the securities once they become distressed.

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I agree, C would be my answer too – in fact it was, but were wrong.
BUT in the CFAI material pg. 223 under emerging market funds says, “there typically is not an organized lending market for securities, so its difficult to sell short most issues”
Same page, under distressed securities, “The manager may take short positions in companies whos situations he believes will worsen, rather than improve, in the short term”
So. All 3 CAN use both LONG / SHORT strategies, but emerging markets is the LEAST LIKELY to short because there ‘difficult to short sell most issues’.
Difficult question, but we won’t get it wrong if we see something like that again.
This is why we practice boys.

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