Reading 51: Buyers Beware: Evaluating and Managing the Ma investment, following, describes, interest, although

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LOS a: Discuss common types of investment risks for hedge funds.

Q1. Which of the following most accurately describes the risks for fixed income hedge funds? The largest risk factor is:

A)   interest rate risk, although during the 1990s interest rates were fairly stable.

B)   a widening of credit spreads, although during the 1990s credit spreads were fairly volatile.

C)   a widening of credit spreads, although during the 1990s credit spreads were fairly stable.

 

Q2. Which of the following most accurately describes the equity market risk exposure of fixed income arbitrage hedge funds? Most fixed income arbitrage hedge funds have:

A)   little or no equity market risk exposure.

B)   an equity market risk exposure because they are short Treasuries and long higher credit risk issues that have an equity market risk exposure.

C)   an equity market risk exposure because they are long Treasuries and short higher credit risk issues that have an equity market risk exposure.

 

Q3. Which of the following is most accurate in describing the betas of emerging market arbitrage hedge funds? These funds have:

A)   high betas in up markets and low betas in down markets.

B)   low betas in up markets and positive betas in down markets.

C)   high betas in both up and down markets.

 

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

A)   Counterparty risk is a problem for securities traded on the NASDAQ exchange.

B)   Most historical data for hedge funds consists of a stable period in the financial markets.

C)   Risk management should be performed on a periodic basis.

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