Suzanne Evans
Well-Known Member
AIMs: Describe equity-based strategies of hedge funds and their associated: Execution mechanics; Return sources and costs. Summarize how macro strategies are used to generate returns by hedge funds.
Questions:
24.1. Which of the following BEST summarizes the core rationale of an equity long/short hedge fund strategy?
a. To exploit pricing inefficiencies across asset classes
b. To shift principal risk from market risk to manager risk
c. To make leveraged bets on anticipated price movements in stock and bond markets, interest rates, foreign exchange and physical commodities
d. To achieve gains based on the spread between an acquirer's purchase price offer and a target stock price after the announcement of the intended acquisition or merger
24.2. An Equity Long/short Manager establishes a $1.0 million liquidity buffer with its Prime Broker; takes (purchases) a $9.0 long position in Stock A; and with $9.0 million in Stock B borrowed from a securities lender, takes a $9.0 short position in Stock B. Which is the following is LEAST likely to be a source of positive return or income to the equity long/short hedge fund manager?
a. Alpha on short position
b. Interest rebate on short position
c. Liquidity buffer interest earned
d. Dividend income on short position
24.3. An institutional investor believes the going-forward environment is bullish (favorable) and wants to increase its exposure to general market movements. The institution is already exposed to overall market returns due to an initial allocation to a global macro (macro-focused) hedge fund. If the fund wants to complement this allocation with an investment that further increases its exposure to general market movements, which of the following is the most likely investment?
a. Equity non-hedge
b. Merger (risk) arbitrage
c. Relative value arbitrage
d. Distressed securities
Answers:
Questions:
24.1. Which of the following BEST summarizes the core rationale of an equity long/short hedge fund strategy?
a. To exploit pricing inefficiencies across asset classes
b. To shift principal risk from market risk to manager risk
c. To make leveraged bets on anticipated price movements in stock and bond markets, interest rates, foreign exchange and physical commodities
d. To achieve gains based on the spread between an acquirer's purchase price offer and a target stock price after the announcement of the intended acquisition or merger
24.2. An Equity Long/short Manager establishes a $1.0 million liquidity buffer with its Prime Broker; takes (purchases) a $9.0 long position in Stock A; and with $9.0 million in Stock B borrowed from a securities lender, takes a $9.0 short position in Stock B. Which is the following is LEAST likely to be a source of positive return or income to the equity long/short hedge fund manager?
a. Alpha on short position
b. Interest rebate on short position
c. Liquidity buffer interest earned
d. Dividend income on short position
24.3. An institutional investor believes the going-forward environment is bullish (favorable) and wants to increase its exposure to general market movements. The institution is already exposed to overall market returns due to an initial allocation to a global macro (macro-focused) hedge fund. If the fund wants to complement this allocation with an investment that further increases its exposure to general market movements, which of the following is the most likely investment?
a. Equity non-hedge
b. Merger (risk) arbitrage
c. Relative value arbitrage
d. Distressed securities
Answers:
