Question 1

Which of the following is common to both hedge funds and mutual funds?

Accepted Answer

A) SEC Registration. 
B) Disclosure rules. 
C) Management fees. 
D) Performance fees. 
E) Investor profiles. 
A) SEC Registration. 
B) Disclosure rules. 
C) Management fees. 
D) Performance fees. 
E) Investor profiles.

Question 2

Prior to 2010, all hedge funds were required to register with the SEC.

Accepted Answer

A) True 
 B)False

Question 3

The long-term mutual fund sector includes

Accepted Answer

A) money market mutual funds. 
B) equity funds. 
C) bond funds. 
D) equity funds and bond funds. 
E) All of the options. 
A) money market mutual funds. 
B) equity funds. 
C) bond funds. 
D) equity funds and bond funds. 
E) All of the options.

Question 4

This practice is especially common in international funds as traders can exploit differences in time zones.

Accepted Answer

A) Directed brokerage. 
B) Insider trading. 
C) Late trading. 
D) Market timing. 
E) Spinning. 
A) Directed brokerage. 
B) Insider trading. 
C) Late trading. 
D) Market timing. 
E) Spinning.

Question 5

Most hedge funds rely on the specific expertise of the fund manager.

Accepted Answer

A) True 
 B)False

Question 6

Open-end mutual funds guarantee

Accepted Answer

A) investors a minimum rate of return. 
B) investors a minimum Net Asset Value (NAV). 
C) to redeem investors' shares upon demand at the daily Net Asset Value (NAV). 
D) to earn the rate of return promised in the prospectus. 
E) that there will be no load charges. 
A) investors a minimum rate of return. 
B) investors a minimum Net Asset Value (NAV). 
C) to redeem investors' shares upon demand at the daily Net Asset Value (NAV). 
D) to earn the rate of return promised in the prospectus. 
E) that there will be no load charges.

Question 7

One of the goals of mutual funds is to achieve superior diversification through fund and risk pooling compared to what individual investors can achieve.

Accepted Answer

A) True 
 B)False

Question 8

Exchange traded funds (ETFs) are registered as investment companies with the Securities Exchange Commission (SEC).

Accepted Answer

A) True 
 B)False

Question 9

12b-1 fees

Accepted Answer

A) are determined as a small percentage of the fund's investable assets. 
B) are annual fees to cover distribution and marketing costs of the fund. 
C) have been approved by the SEC. 
D) are capped at a maximum 0.25 percent for no-load funds. 
E) All of the options. 
A) are determined as a small percentage of the fund's investable assets. 
B) are annual fees to cover distribution and marketing costs of the fund. 
C) have been approved by the SEC. 
D) are capped at a maximum 0.25 percent for no-load funds. 
E) All of the options.

Question 10

Market neutral-arbitrage funds attempt to hedge market risk by taking offsetting positions, often in different securities of the same issuer.

Accepted Answer

A) True 
 B)False

Question 11

These "more risky" hedge funds aim to profit from changes in global economies, typically brought about by shifts in government policy that impact interest rates.

Accepted Answer

A) Distressed securities funds. 
B) Macro funds. 
C) Value funds. 
D) Opportunistic funds. 
E) Market timing funds. 
A) Distressed securities funds. 
B) Macro funds. 
C) Value funds. 
D) Opportunistic funds. 
E) Market timing funds.

Question 12

As compared to purchasing an individual stock, a no-load mutual fund investor will usually get

Accepted Answer

A) commission less reinvestment opportunities. 
B) better diversification. 
C) no-cost switching between funds within the same fund family. 
D) lower commission costs. 
E) All of the options 
A) commission less reinvestment opportunities. 
B) better diversification. 
C) no-cost switching between funds within the same fund family. 
D) lower commission costs. 
E) All of the options

Question 13

The hedge fund industry is built on the theory that

Accepted Answer

A) a profit can always be made if each investment has an off-setting position to cover any losses. 
B) proper diversification can be attained with larger sums of money and fewer assets. 
C) wealthy individuals should be expected to make more informed investment decisions and can take on higher levels of risk. 
D) strategies such as program trading and arbitrage are only successful if leverage (borrowed funds) are used. 
E) it takes money to make money. 
A) a profit can always be made if each investment has an off-setting position to cover any losses. 
B) proper diversification can be attained with larger sums of money and fewer assets. 
C) wealthy individuals should be expected to make more informed investment decisions and can take on higher levels of risk. 
D) strategies such as program trading and arbitrage are only successful if leverage (borrowed funds) are used. 
E) it takes money to make money.

Question 14

Historical evidence indicates that the benefits of greater management attention in load funds do not outweigh the disadvantages of the load fee.

Accepted Answer

A) True 
 B)False

Question 15

The rate of investing in mutual funds tends to be positively correlated with economic activity in the U.S., but is negatively correlated with economic activity in other countries.

Accepted Answer

A) True 
 B)False

Question 16

Class B shares of a mutual fund are typically charged a back-end load when the shares are redeemed.

Accepted Answer

A) True 
 B)False

Question 17

Mutual fund shares that are offered for sale at the NAV without a front-end load, but which charge a combination of 12b-1 fees and a back-end load, and whose back-end load typically remains in effect for 6 to 8 years, are

Accepted Answer

A) Class A shares. 
B) Class B shares. 
C) Class C shares. 
D) Class D shares. 
E) either Class A or Class C shares. 
A) Class A shares. 
B) Class B shares. 
C) Class C shares. 
D) Class D shares. 
E) either Class A or Class C shares.

Question 18

The front-end or back-end loads charged by some mutual funds often are combined with 12b-1 fees.

Accepted Answer

A) True 
 B)False

Question 19

Worldwide investments in mutual funds have grown at a rate faster than in the United States over the last decade.

Accepted Answer

A) True 
 B)False

Question 20

What agency acts as the distributor or "clearinghouse" for mutual fund transactions?

Accepted Answer

A) SEC. 
B) NASD. 
C) FedWire. 
D) NYSE. 
E) U.S.Treasury. 
A) SEC. 
B) NASD. 
C) FedWire. 
D) NYSE. 
E) U.S.Treasury.

Exam 5: Financial Services: Mutual Funds and Hedge Funds

Which of the following is common to both hedge funds and mutual funds?

Prior to 2010, all hedge funds were required to register with the SEC.

The long-term mutual fund sector includes

This practice is especially common in international funds as traders can exploit differences in time zones.

Most hedge funds rely on the specific expertise of the fund manager.

Open-end mutual funds guarantee

One of the goals of mutual funds is to achieve superior diversification through fund and risk pooling compared to what individual investors can achieve.

Exchange traded funds (ETFs) are registered as investment companies with the Securities Exchange Commission (SEC).

12b-1 fees

Market neutral-arbitrage funds attempt to hedge market risk by taking offsetting positions, often in different securities of the same issuer.

These "more risky" hedge funds aim to profit from changes in global economies, typically brought about by shifts in government policy that impact interest rates.

As compared to purchasing an individual stock, a no-load mutual fund investor will usually get

The hedge fund industry is built on the theory that

Historical evidence indicates that the benefits of greater management attention in load funds do not outweigh the disadvantages of the load fee.

The rate of investing in mutual funds tends to be positively correlated with economic activity in the U.S., but is negatively correlated with economic activity in other countries.

Class B shares of a mutual fund are typically charged a back-end load when the shares are redeemed.

Mutual fund shares that are offered for sale at the NAV without a front-end load, but which charge a combination of 12b-1 fees and a back-end load, and whose back-end load typically remains in effect for 6 to 8 years, are

The front-end or back-end loads charged by some mutual funds often are combined with 12b-1 fees.

Worldwide investments in mutual funds have grown at a rate faster than in the United States over the last decade.

What agency acts as the distributor or "clearinghouse" for mutual fund transactions?

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