CFA Practice Question

There are 139 practice questions for this study session.

CFA Practice Question

What is the most significant factor causing hedge funds to make either larger than normal returns or significant losses?

A. Hefty incentive fees (e.g., 20%).
B. leverage.
C. lack of regulation.
Correct Answer: B

Hedge funds leverage their portfolios by borrowing external funds and/or using financial instruments and derivatives that require posting margins. By using margins, hedge funds only pay a fraction of the value of the position.

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