Topic 2

Question 1

Absolute Return Products

Answer 1

Assets that make returns. Different from Relative Returns in that it isn’t benchmarked against others

Question 2

Active Management

Answer 2

The use of human capital to manage a portfolio

Question 3

Active Risk

Answer 3

The risk taken on in order to outperform a benchmark

Question 4

Diversifier

Answer 4

Something to hedge against the current makeup of a portfolio, performance is not correlated with the rest of the portfolio

Question 5

Incomplete Markets

Answer 5

Where the number of Arrow-Debreu securities is less than the number of states in nature. Total supply is insufficient to meet the needs of consumers.

Question 6

Institutional Factors

Answer 6

Economic factors, labor markets, social factors, political factors

Question 7

Lumpy Asset

Answer 7

An asset that can not be acquired in small bits

Question 8

Pure Arbitrage

Answer 8

Buying & selling the same security on different exchanges to take advantage of price differences

Question 9

Relative Return

Answer 9

Difference between an asset’s return and its benchmark

Question 10

Return Enhancer

Answer 10

Asset added to the portfolio that is expected to have a higher than average return.

Question 11

40 Act Fund

Answer 11

Pooled investment vehicle (mutual funds)

Question 12

Adverse Selection

Answer 12

Buyers and sellers don’t have the same information.

Question 13

Closed-End Mutual Fund

Answer 13

Mutual fund that only has a limited number of shares

Question 14

Open-End Mutal Fund

Answer 14

Can have unlimited shares

Question 15

Depository Trust Company

Answer 15

Clearinghouse that processes and settles trades and does record-keeping of securities balances

Question 16

Dividend Irrelevance Theory

Answer 16

Dividends don’t affect the company stock price (some critics say dividends add value to a stock price)

Question 17

Feeder Fund

Answer 17

One of several sub-funds that pools investments into a master fund which then pays out earnings back to the feeders.

Question 18

Fourth Markets

Answer 18

Referring to when securities trade OTC (over-the-counter)

Question 19

General Collateral Stocks

Answer 19

Securities that generate lending income. Lending these highly liquid securities (S&P 500 stocks) yield low returns and are done at high volumes.

Question 20

Limited Partners Advisory Committee

Answer 20

A committee of LPs that has voting rights and advises the GPs (general partners)

Question 21

Plan Sponsor

Answer 21

A party that sets up 401ks or healthcare insurance for a company’s employees

Question 22

Prime Brokerage

Answer 22

Investment services offered to funds by IBs or individuals by wealth managers.

Question 23

Probity

Answer 23

Adherence to ideas

Question 24

Primary Market

Answer 24

Where securities are created (directly from the source)

Question 25

Secondary Market

Answer 25

Where securities are traded (stock market)

Question 26

Section 1256 Contract

Answer 26

Investments made in derivatives where if not sold by the end of the year it is treated as sold at fair market value.

Question 27

Qualified Majority

Answer 27

Number of votes required for a decision to be made

Question 28

Short Squeeze

Answer 28

When many investors short a stock, but the price keeps going up.

Question 29

SPV & SPE (special purpose vehicle/entity)

Answer 29

A subsidiary created by a financial company to isolate financial risk