P2.T8. Investment Management

Practice questions for investment management and risk management

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  1. Suzanne Evans

    Question 11: Short-selling strategies

    Question: According to Jaeger, short-selling strategies involve additional issues (i.e., above long only strategies) that primarily relate to: A. Uncapped loss potential B. Challenging investor psychology C. Twice the opportunity (long + short) D. The process of borrowing stocks Answer: D Explanation: The problems that relate to borrowing include: share availability, stability of...
    Question: According to Jaeger, short-selling strategies involve additional issues (i.e., above long only strategies) that primarily relate to: A. Uncapped loss potential B. Challenging investor psychology C. Twice the opportunity (long + short) D. The process of borrowing stocks Answer: D Explanation: The problems that relate to borrowing include: share availability, stability of...
    Question: According to Jaeger, short-selling strategies involve additional issues (i.e., above long only strategies) that primarily relate to: A. Uncapped loss potential B. Challenging investor psychology C. Twice the opportunity (long + short) D. The process of borrowing stocks Answer:...
    Question: According to Jaeger, short-selling strategies involve additional issues (i.e., above long only strategies) that primarily relate to: A. Uncapped loss potential B. Challenging...
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  2. Suzanne Evans

    Question 10: Market timing strategies

    Question: Which are the two main types of market timing strategies: A. Sector and time zone arbitrage B. Currency and sector C. Interest rate and industry D. Exchanges (NYSE vs. NASDAQ) and time zone Answer: A Explanation: Sector timing aims to profit from micro upward trends in single industry sectors; time zone arbitrage exploits pricing inefficiencies based on "conditional price...
    Question: Which are the two main types of market timing strategies: A. Sector and time zone arbitrage B. Currency and sector C. Interest rate and industry D. Exchanges (NYSE vs. NASDAQ) and time zone Answer: A Explanation: Sector timing aims to profit from micro upward trends in single industry sectors; time zone arbitrage exploits pricing inefficiencies based on "conditional price...
    Question: Which are the two main types of market timing strategies: A. Sector and time zone arbitrage B. Currency and sector C. Interest rate and industry D. Exchanges (NYSE vs. NASDAQ) and time zone Answer: A Explanation: Sector timing aims to profit from micro upward trends in...
    Question: Which are the two main types of market timing strategies: A. Sector and time zone arbitrage B. Currency and sector C. Interest rate and industry D. Exchanges (NYSE vs. NASDAQ) and...
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  3. Suzanne Evans

    Question 9: Fama-French factor

    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? A. Value stocks (low price to book) B. Small capitalization stocks C. Momentum factors D. Low liquidity factors Answer: D Explanation: While liquidity may indeed by a factor, the...
    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? A. Value stocks (low price to book) B. Small capitalization stocks C. Momentum factors D. Low liquidity factors Answer: D Explanation: While liquidity may indeed by a factor, the...
    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? A. Value stocks (low price to book) B. Small capitalization stocks C. Momentum factors D. Low...
    Question: Jaeger argues that even if broad market neutrality is achieved, a manager is potentially exposed to several "beta-type" risk factors. Which of the following is not a Fama-French factor? ...
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  4. Suzanne Evans

    Question 8: Strategies

    Question: A manager takes a simultaneous long position in Google and short position in Yahoo, believing them to both have similar market exposure. This typifies which strategy? A. Long/short equity B. Equity market neutral C. Equity market timing D. Short selling Answer: B Explanation: Equity market neutral tries to exploit price discrepancies without exposure to the broad market...
    Question: A manager takes a simultaneous long position in Google and short position in Yahoo, believing them to both have similar market exposure. This typifies which strategy? A. Long/short equity B. Equity market neutral C. Equity market timing D. Short selling Answer: B Explanation: Equity market neutral tries to exploit price discrepancies without exposure to the broad market...
    Question: A manager takes a simultaneous long position in Google and short position in Yahoo, believing them to both have similar market exposure. This typifies which strategy? A. Long/short equity B. Equity market neutral C. Equity market timing D. Short selling Answer: B ...
    Question: A manager takes a simultaneous long position in Google and short position in Yahoo, believing them to both have similar market exposure. This typifies which strategy? A. Long/short...
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  5. Suzanne Evans

    Question 7: Short selling

    Question: According to Jaeger, which is not a purpose of short selling: A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes at target company Answer: D Explanation: (D) is not cited; the others are advantages to shorting.
    Question: According to Jaeger, which is not a purpose of short selling: A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes at target company Answer: D Explanation: (D) is not cited; the others are advantages to shorting.
    Question: According to Jaeger, which is not a purpose of short selling: A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes at target company Answer: D Explanation: (D) is not cited; the others are advantages to shorting.
    Question: According to Jaeger, which is not a purpose of short selling: A. Generating positive returns B. Hedging market risk C. Earning the short rebate D. Useful threat to promote changes...
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  6. Suzanne Evans

    Question 6: Style drift

    Question: Jaeger says style drift is undesirable. True or false? A. True. Jaeger says all style drift is undesirable B. True UNLESS the drift is necessary as part of a proprietary, secret trading strategy C. False. Jaeger says expected style drift can be desirable D. False. Jaeger says style drift is desirable. Answer: C Explanation: Jaeger approves of drift if it part of the...
    Question: Jaeger says style drift is undesirable. True or false? A. True. Jaeger says all style drift is undesirable B. True UNLESS the drift is necessary as part of a proprietary, secret trading strategy C. False. Jaeger says expected style drift can be desirable D. False. Jaeger says style drift is desirable. Answer: C Explanation: Jaeger approves of drift if it part of the...
    Question: Jaeger says style drift is undesirable. True or false? A. True. Jaeger says all style drift is undesirable B. True UNLESS the drift is necessary as part of a proprietary, secret trading strategy C. False. Jaeger says expected style drift can be desirable D. False. Jaeger says...
    Question: Jaeger says style drift is undesirable. True or false? A. True. Jaeger says all style drift is undesirable B. True UNLESS the drift is necessary as part of a proprietary, secret...
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  7. Suzanne Evans

    Question 5: Hedge funds evalution

    Question: According to Jaeger, which is least important criteria in a fund of hedge fund's evaluation (i.e., due diligence) of a hedge fund manager: A. Past performance B. Investment process C. Business model D. Depth of resources Answer: A Explanation: "Due to high variability of returns of individual hedge fund managers, and the changing correlation features...the use of past...
    Question: According to Jaeger, which is least important criteria in a fund of hedge fund's evaluation (i.e., due diligence) of a hedge fund manager: A. Past performance B. Investment process C. Business model D. Depth of resources Answer: A Explanation: "Due to high variability of returns of individual hedge fund managers, and the changing correlation features...the use of past...
    Question: According to Jaeger, which is least important criteria in a fund of hedge fund's evaluation (i.e., due diligence) of a hedge fund manager: A. Past performance B. Investment process C. Business model D. Depth of resources Answer: A Explanation: "Due to high variability of...
    Question: According to Jaeger, which is least important criteria in a fund of hedge fund's evaluation (i.e., due diligence) of a hedge fund manager: A. Past performance B. Investment process ...
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  8. Suzanne Evans

    Question 4: Hedge funds

    Question: According to Jaeger, what is the essential characteristic of a fund of a hedge fund (i.e., as an advantage over a single hedge fund and which distinguishes among funds of hedge funds)? A. Diversification B. Absolute returns C. Operational due diligence D. Less total cost Answer: A Explanation: In exchange for an additional layer of fees, a fund of hedge fund "spreads the...
    Question: According to Jaeger, what is the essential characteristic of a fund of a hedge fund (i.e., as an advantage over a single hedge fund and which distinguishes among funds of hedge funds)? A. Diversification B. Absolute returns C. Operational due diligence D. Less total cost Answer: A Explanation: In exchange for an additional layer of fees, a fund of hedge fund "spreads the...
    Question: According to Jaeger, what is the essential characteristic of a fund of a hedge fund (i.e., as an advantage over a single hedge fund and which distinguishes among funds of hedge funds)? A. Diversification B. Absolute returns C. Operational due diligence D. Less total cost ...
    Question: According to Jaeger, what is the essential characteristic of a fund of a hedge fund (i.e., as an advantage over a single hedge fund and which distinguishes among funds of hedge funds)? ...
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  9. Suzanne Evans

    Question 3: IRC

    Question: Which is NOT an objective defined by IRC in seeking hedge fund disclosures: A. Risk monitoring B. Risk aggregation C. Expense ratio transparency D. Strategy drift monitoring Answer: C Explanation: The IRC defined three disclosure objectives: (1) Risk monitoring, (2) Risk aggregation; i.e., so investors can properly aggregate their risks, and (3) strategy drift monitoring;...
    Question: Which is NOT an objective defined by IRC in seeking hedge fund disclosures: A. Risk monitoring B. Risk aggregation C. Expense ratio transparency D. Strategy drift monitoring Answer: C Explanation: The IRC defined three disclosure objectives: (1) Risk monitoring, (2) Risk aggregation; i.e., so investors can properly aggregate their risks, and (3) strategy drift monitoring;...
    Question: Which is NOT an objective defined by IRC in seeking hedge fund disclosures: A. Risk monitoring B. Risk aggregation C. Expense ratio transparency D. Strategy drift monitoring Answer: C Explanation: The IRC defined three disclosure objectives: (1) Risk monitoring, (2) Risk...
    Question: Which is NOT an objective defined by IRC in seeking hedge fund disclosures: A. Risk monitoring B. Risk aggregation C. Expense ratio transparency D. Strategy drift monitoring ...
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  10. Suzanne Evans

    Question 2: Generic ABS factor

    Question: According to Fung and Hsieh, most fixed income hedge funds are exposed to which generic ABS factor: A. an increase in the riskless rate (Treasury rate) B. a decrease in the riskless rate C. a decrease in credit spread D. an increase in credit spread Answer: D Explanation: For most of the five reviewed styles, the strongest explanatory power (i.e., the highest R2) related...
    Question: According to Fung and Hsieh, most fixed income hedge funds are exposed to which generic ABS factor: A. an increase in the riskless rate (Treasury rate) B. a decrease in the riskless rate C. a decrease in credit spread D. an increase in credit spread Answer: D Explanation: For most of the five reviewed styles, the strongest explanatory power (i.e., the highest R2) related...
    Question: According to Fung and Hsieh, most fixed income hedge funds are exposed to which generic ABS factor: A. an increase in the riskless rate (Treasury rate) B. a decrease in the riskless rate C. a decrease in credit spread D. an increase in credit spread Answer: D Explanation:...
    Question: According to Fung and Hsieh, most fixed income hedge funds are exposed to which generic ABS factor: A. an increase in the riskless rate (Treasury rate) B. a decrease in the riskless...
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  11. Suzanne Evans

    Question 1: Trent following strategy

    Question: Fung and Hsieh show that a "trend-following strategy" can be implemented with: A. a short position in a lookback straddle B. a long position in a lookback straddle C. a long position in a strangle D. a short position in a butterfly Answer: B Explanation: A lookback straddle is a pair of structured options. The lookback call option gives the holder the right (the option)...
    Question: Fung and Hsieh show that a "trend-following strategy" can be implemented with: A. a short position in a lookback straddle B. a long position in a lookback straddle C. a long position in a strangle D. a short position in a butterfly Answer: B Explanation: A lookback straddle is a pair of structured options. The lookback call option gives the holder the right (the option)...
    Question: Fung and Hsieh show that a "trend-following strategy" can be implemented with: A. a short position in a lookback straddle B. a long position in a lookback straddle C. a long position in a strangle D. a short position in a butterfly Answer: B Explanation: A lookback straddle...
    Question: Fung and Hsieh show that a "trend-following strategy" can be implemented with: A. a short position in a lookback straddle B. a long position in a lookback straddle C. a long...
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