Question 1

Long-term mutual funds invest primarily in long-term,fixed-income securities such as corporate and/or government bonds.

Accepted Answer

A) True 
 B)False

Question 2

Match the following pieces of legislation with the function achieved by each regulation as stated in the question.
-Requires a mutual fund to set rules and procedures regarding the fund's prospectus sent to investors.

Accepted Answer

A) Securities Act of 1933 
B) Securities Exchange Act of 1934 
C) Investment Advisers Act of 1940 
D) Investment Company Act of 1940 
E) Insider Trading and Securities Fraud Enforcement Act of 1988
F)Market Reform Act of 1990
G)National Securities Markets Improvement Act of 1996 
A) Securities Act of 1933 
B) Securities Exchange Act of 1934 
C) Investment Advisers Act of 1940 
D) Investment Company Act of 1940 
E) Insider Trading and Securities Fraud Enforcement Act of 1988
F)Market Reform Act of 1990
G)National Securities Markets Improvement Act of 1996

Question 3

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. 
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.

Question 4

Historical evidence indicates that load funds perform better than no-load funds.

Accepted Answer

A) True 
 B)False

Question 5

Most exchange traded funds (ETFs)are long-term mutual funds designed to replicate a particular market index.

Accepted Answer

A) True 
 B)False

Question 6

As a result of the Wall Street Reform and Consumer Protection Act of 2010,

Accepted Answer

A) hedge fund advisers of pools greater than $100 million must register with the SEC. 
B) hedge funds with assets greater than $100 are subject to provisions of the Investment Company Act of 1940. 
C) hedge fund advisers of pools less than $100 are overseen by state regulators. 
D) it is possible that a large,risky hedge fund may be forced to be regulated by the Federal Reserve. 
E) All of the options are true. 
A) hedge fund advisers of pools greater than $100 million must register with the SEC. 
B) hedge funds with assets greater than $100 are subject to provisions of the Investment Company Act of 1940. 
C) hedge fund advisers of pools less than $100 are overseen by state regulators. 
D) it is possible that a large,risky hedge fund may be forced to be regulated by the Federal Reserve. 
E) All of the options are true.

Question 7

Which of the following observations is true of a no-load fund?

Accepted Answer

A) Purchase is subject to a sales charge. 
B) Sales charges may be as high as 8.5 percent. 
C) They market shares of the fund directly to investors. 
D) They use sales agents. 
A) Purchase is subject to a sales charge. 
B) Sales charges may be as high as 8.5 percent. 
C) They market shares of the fund directly to investors. 
D) They use sales agents.

Question 8

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 9

Most individuals who invest in mutual funds for the first time realize that mutual fund investments carry some risk.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is the term used to link the hedge fund manager's incentives more closely to those of the fund investors and to reduce the manager's incentive to increase the risk of trades?

Accepted Answer

A) High-water marks. 
B) Discount rates. 
C) Trade limits. 
D) Management fees. 
A) High-water marks. 
B) Discount rates. 
C) Trade limits. 
D) Management fees.

Question 12

Which of the following is true about the values of most money market mutual fund shares?

Accepted Answer

A) They fluctuate heavily. 
B) Values are fixed at $1. 
C) Values are fixed at $100. 
D) They depend on market demand. 
A) They fluctuate heavily. 
B) Values are fixed at $1. 
C) Values are fixed at $100. 
D) They depend on market demand.

Question 13

Mutual funds achieve economies of scale for individual investors by realizing the benefits of lower transaction costs and commissions as compared to those incurred by individual investors.

Accepted Answer

A) True 
 B)False

Question 14

The return from investing in mutual funds can include dividends,gains from the sale of the mutual fund assets,and gains from the sale of the mutual fund shares.

Accepted Answer

A) True 
 B)False

Question 15

Hedge funds offer a high degree of privacy for their investors.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following hedge fund objectives would be classified under the "moderate risk" category?

Accepted Answer

A) Distressed securities funds. 
B) Market neutral-arbitrage funds. 
C) Value funds. 
D) Short selling funds. 
A) Distressed securities funds. 
B) Market neutral-arbitrage funds. 
C) Value funds. 
D) Short selling funds.

Question 17

The NAV of a closed-end investment company shares is determined at any point in time by

Accepted Answer

A) the number of shares available. 
B) the value of the outstanding shares owned by investors. 
C) the supply of the investment company's shares. 
D) the demand for the investment company's shares. 
E) the value of the underlying assets and the number of the investment company shares issued. 
A) the number of shares available. 
B) the value of the outstanding shares owned by investors. 
C) the supply of the investment company's shares. 
D) the demand for the investment company's shares. 
E) the value of the underlying assets and the number of the investment company shares issued.

Question 18

The number of funds and assets size of the mutual fund industry have grown dramatically since 1970 because of the introduction of

Accepted Answer

A) money market mutual funds in 1972. 
B) tax-exempt money market mutual funds in 1979. 
C) special-purpose equity,bond,and derivative funds. 
D) 401-k retirement plans sponsored by employers. 
E) All of the options. 
A) money market mutual funds in 1972. 
B) tax-exempt money market mutual funds in 1979. 
C) special-purpose equity,bond,and derivative funds. 
D) 401-k retirement plans sponsored by employers. 
E) All of the options.

Question 19

As a result of trading and fee assignment abuses by the mutual fund industry,the SEC established new rules regarding fund governance and conflicts of interest in 2004 and 2005.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following hedge fund objectives would be classified under the "more risky" category?

Accepted Answer

A) Distressed securities funds. 
B) Fund of funds. 
C) Opportunistic funds. 
D) Emerging markets funds. 
A) Distressed securities funds. 
B) Fund of funds. 
C) Opportunistic funds. 
D) Emerging markets funds.

Exam 5: Financial Services: Mutual Fund and Hedge Fund Companies

Long-term mutual funds invest primarily in long-term,fixed-income securities such as corporate and/or government bonds.

Match the following pieces of legislation with the function achieved by each regulation as stated in the question. -Requires a mutual fund to set rules and procedures regarding the fund's prospectus sent to investors.

The hedge fund industry is built on the theory that

Historical evidence indicates that load funds perform better than no-load funds.

Most exchange traded funds (ETFs)are long-term mutual funds designed to replicate a particular market index.

As a result of the Wall Street Reform and Consumer Protection Act of 2010,

Which of the following observations is true of a no-load fund?

12b-1 fees

Most individuals who invest in mutual funds for the first time realize that mutual fund investments carry some risk.

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

Which of the following is the term used to link the hedge fund manager's incentives more closely to those of the fund investors and to reduce the manager's incentive to increase the risk of trades?

Which of the following is true about the values of most money market mutual fund shares?

Mutual funds achieve economies of scale for individual investors by realizing the benefits of lower transaction costs and commissions as compared to those incurred by individual investors.

The return from investing in mutual funds can include dividends,gains from the sale of the mutual fund assets,and gains from the sale of the mutual fund shares.

Hedge funds offer a high degree of privacy for their investors.

Which of the following hedge fund objectives would be classified under the "moderate risk" category?

The NAV of a closed-end investment company shares is determined at any point in time by

The number of funds and assets size of the mutual fund industry have grown dramatically since 1970 because of the introduction of

As a result of trading and fee assignment abuses by the mutual fund industry,the SEC established new rules regarding fund governance and conflicts of interest in 2004 and 2005.

Which of the following hedge fund objectives would be classified under the "more risky" category?

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Individual Loan Risk

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

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