What strategies do hedge funds employ to earn their returns?
A) Their strategies may include arbitrage, high levels of leverage, and active involvement in the derivatives market.
B) Their strategies may include indexing the returns of major stock exchanges in North America.
C) Their strategies may include indexing the returns of stock and bond markets in North America.
D) Their strategies may include indexing the returns of North American mutual funds.
E) Their strategies include indexing the returns of risk-free returns such as North American government bonds.

Question

Quizplus · Accepted Answer

Hedge funds often employ a variety of complex strategies to earn returns, including arbitrage (taking advantage of price differences between markets), using high levels of leverage (borrowing to increase potential returns), and actively trading in derivatives (financial contracts whose value is derived from the value of an underlying asset). Indexing, which involves replicating the returns of a specific market index, is typically not a strategy used by hedge funds, as they aim for higher returns through more active and often riskier strategies.

What Strategies Do Hedge Funds Employ to Earn Their Returns