Chapter 2: The Environment of Alternative Investments

Question 1

Potential for economy-wide losses attributable to failures or concerns over potential failures in financial markets, financial institutions, or major participants is referred to as?

Answer 1

Systemic Risk

Question 2

Short term capital gains are taxed at in the united states?

Answer 2

Ordinary income rate

Question 3

Advantage of SMA relative to mutual funds?

Answer 3

Satisfy individual needs

Question 4

Hedge funds is most directly related to the Securities Act of 1922.

Answer 4

Hedge funds deemed to not offer securities to the public are exempt from registering securities with the SEC.

Question 5

Liquid alternative most closely resembles the private placement strategies they try to mimic?

Answer 5

Unconstrained clones

Question 6

Electronic exchanges that allow traders to quickly buy and sell exchange-listed stocks via the electronic communications system offered by these markets are know as?

Answer 6

Fourth Market

Question 7

An example of market participant that is on the sell side:

Answer 7

Large Dealer Banks

Question 8

An example of a market participant that is on the buy side:

Answer 8

Commodity Trading Advisers (CTAs)

Question 9

Documents filed by hedge fund attorney, which is submitted by an investor who desires to join a limited partnership?

Answer 9

Subscription Agreement

Question 10

Best defines master limited partnerships (MLPs):

Answer 10

Publicly traded investment pools that are structured as limited partnerships and that offer their owners pro rata claims.

Question 11

Primary Markets

Answer 11

Methods, institutions, and mechanisms involved in the placement of new securities. IPO

Question 12

Securitization

Answer 12

Bundling assets, unlisted assets, issuing claims on bundled assets.

Question 13

Secondary Markets

Answer 13

Trading among investors of previously existing securities.

Question 14

Bid-ask spread

Answer 14

Price difference between the highest bid price(the best bid price) and the lowest offer (the best ask price).

Question 15

Standard III(A)

Answer 15

Duties to the client. Candidates and members seek “best price” and “best execution” to maximize the value of the client’s portfolio when trading.

Question 16

Third Markets

Answer 16

Regional exchanges where stocks listed in primary and secondary markets can also be traded. OTC market

Question 17

Fourth Markets

Answer 17

Electronic exchanges that allow traders to quickly buy and sell exchange-listed stocks via the electronic communications systems offered by these markets. Private, nonregulated markets that offers low transaction costs but little tranparency.

Question 18

What is the term for private management advisory firm that serves a group of related and ultra-high net worth investors?

Answer 18

Family Office

Question 19

In a large financial services organization, what is the name used to denote the people and process that play a supportive role in the maintenance of accounts and information systems as well as in the clearance and settlement of trades?

Answer 19

Back office operations

Question 20

Are dealer banks described as buy-side or sell-side market participants?

Answer 20

Sell-side market participants

Question 21

Unconstrained Clone

Answer 21

Follows virtually same strategy

Question 22

Constrained Clone

Answer 22

Similar strategy but with some constraints (leverage, concentration, liquidity)

Question 23

Liquidity Based Replication Product

Answer 23

Mimics strategy with liquid proxies

Question 24

Skill Based Replication Product

Answer 24

Mimics strategy mechanically

Question 25

Absolute Return or Diversified Products

Answer 25

May offer diversification, but generally not innovative and very constrained.