Question 1

A hedge fund will contribute to market volatility&#10;A) If it is making profit for its investors&#10;B) If it is making losses for its investors&#10;C) If its returns track market returns&#10;D) If its managers actively manage its portfolio

Accepted Answer

Hedge funds can contribute to market volatility when they make losses, as they may be forced to sell assets quickly to meet redemptions or margin calls, which can lead to rapid price changes in the market.

Question 2

Hedge, venture capital, and private equity funds are typically organized as&#10;A) Corporations&#10;B) Trusts&#10;C) Sole proprietorships&#10;D) Limited partnerships

Accepted Answer

Hedge, venture capital, and private equity funds are typically organized as limited partnerships. This structure allows for a general partner (who manages the fund and makes investment decisions) to have unlimited liability, while the limited partners (investors) have liability only up to the amount of their investment in the fund. This setup is preferred due to its tax advantages and the limited liability protection it offers to investors.

Question 3

Acting to align fund manager compensation with the interests of other investors is&#10;A) Managers hold shares in the fund-have &#34;skin&#34; in the game&#10;B) A management fee is based on assets under management&#10;C) A performance fee based on returns on the assets under management in excess of a benchmark&#10;D) All of the above

Accepted Answer

All of the options provided are methods to align the interests of fund managers with those of the investors. Managers holding shares in the fund ensures they have a personal stake in its performance. A management fee based on assets under management incentivizes managers to grow the fund, while a performance fee based on returns exceeding a benchmark motivates them to outperform the market or specific benchmarks, aligning their goals with those of the investors.

Question 4

Which of the following rely on the services of a prime broker?&#10;A) Hedge funds&#10;B) Venture capital funds&#10;C) Private equity funds&#10;D) All of the above

Accepted Answer

Hedge funds often rely on the services of a prime broker for functions such as securities lending, leverage financing, and trade execution. Venture capital and private equity funds typically do not use prime brokerage services in the same way, as their investment strategies and structures differ significantly from those of hedge funds.

Question 5

The use of leverage by hedge and private equity funds&#10;A) Magnifies the returns to investors&#10;B) Adds to the fund's risk profile&#10;C) Can add to discipline on fund managers from creditors&#10;D) All of the above

Accepted Answer

Leverage magnifies returns, increases risk, and can add discipline due to creditor oversight, making all the statements correct.

Question 6

Which of the following type of fund poses the most serious threat to financial stability?&#10;A) Hedge funds&#10;B) Venture capital funds&#10;C) Private equity funds&#10;D) All pose the same degree of risk

Accepted Answer

Hedge funds often employ high leverage and engage in speculative investment strategies, which can pose significant risks to financial stability. Unlike venture capital and private equity funds, which invest in companies over a longer term and use less leverage, hedge funds' aggressive strategies and use of borrowed money can lead to substantial losses, potentially impacting broader financial markets.

Question 7

When hedge funds take actions that bring asset values into closer alignment with economic fundamentals&#10;A) Resources are more effectively guided to where they are valued most&#10;B) Monetary policy goals are better achieved&#10;C) Investors earn above-market returns&#10;D) All of the above

Accepted Answer

The answer of When hedge funds take actions that bring...

Question 8

Venture capital funds contribute to economic value by&#10;A) Screening start-up and early-stage firms that are more likely to develop products that meet the market test&#10;B) Providing financing for expansion&#10;C) Providing business and managerial expertise&#10;D) All of the above

Accepted Answer

Venture capital funds contribute to economic value in multiple ways: they screen and select promising start-up and early-stage firms, provide crucial financing for expansion, and offer valuable business and managerial expertise to help these companies grow and succeed.

Question 9

The venture capital industry places a great deal of focus on which sector of the economy?&#10;A) Firms engaged in international trade&#10;B) Technology firms-information and biotech&#10;C) Capital goods producers&#10;D) Consumer goods producers

Accepted Answer

The venture capital industry is particularly focused on technology firms, including both information technology and biotechnology sectors, due to their high growth potential and innovative business models.

Question 10

Common types of exit for venture capital and private equity investments is&#10;A) Initial public offerings (IPOs)&#10;B) Acquisitions by other firms&#10;C) Liquidation&#10;D) Both a and b

Accepted Answer

Initial public offerings (IPOs) and acquisitions by other firms are common exit strategies for venture capital and private equity investments, allowing investors to realize returns on their investments.

Question 11

In which type of fund do investors make the longest-term commitment of their funds?&#10;A) Hedge funds&#10;B) Mutual funds&#10;C) Private equity funds&#10;D) The commitment is roughly the same for each

Accepted Answer

The answer of In which type of fund do investors...

Question 12

A vibrant venture capital sector affects macroeconomic performance by&#10;A) Adding to the skills of the labor force&#10;B) Increasing the level of investment&#10;C) Increasing the rate of productivity growth&#10;D) None of the above

Accepted Answer

The answer of A vibrant venture capital sector affects macroeconomic...

Deck 19: Hedge, Venture Capital, and Private Equity Funds