Unit 17 (3)

Question 1

What do you buy for max return if you think the market is going to have a bad day?

Answer 1

An inverse leveraged ETF

Question 2

What is the philosophy behind flow thru?

Answer 2

Any income or losses generated by a DPP like an Oil and Gas Drilling DPP flow directly to investors. There is no tax at the entity level. If there are losses they may only be deducted against passive income

Question 3

Who carries the credit risk for an ETN?

Answer 3

The issuers credit rating. ETNS are unsecured debt obligations carrying the credit risk of the issuer. Fixed income has the market risk referred to as interest rate risk. ETNS are callable. ETNS are not insured by banks.

Question 4

What is the primary motivation for financial structuring?

Answer 4

Increase market completeness. They are made to meet a specific need for which there is nothing available currently. Creating structured products is a cost to issuers. Investors pay fees for access to structured products in addition to transaction costs.

Question 5

What is the first priority of a DPP investment?

Answer 5

Economic viability. The IRS considers programs designed solely to generate tax benefits abusive. There is a very limited secondary market for DPPs so they are not liquid. Liquidity and marketability should be a low concern

Question 6

Alternative assets are most often characterized by

Answer 6

Inefficient pricing, providing potential abnormal returns or alpha returns

Question 7

If the income from a limited partnership tax exempt?

Answer 7

No. You can use a loss to offset passive gains, however.

Question 8

What would be one risk of owning a limited partnership?

Answer 8

Legislative risk. Limited partnerships are vulnerable to legislative changes that adversely affect ownership of such investments.