CFA Practice Question

There are 139 practice questions for this study session.

CFA Practice Question

A typical hedge fund can:

I. Borrow money to invest.
II. Trade options, futures and swaps.
III. Short sell stocks.
IV. Buy and sell equities.
Correct Answer: I, II, III and IV

Mutual funds are limited in their ability to hedge their positions through short-sales and derivatives use; they are subject to diversification restrictions that constrain their ability to exploit perceived opportunities; and they must redeem shares on short notice. In contrast, derivatives and short positions are critical in most hedge fund strategies and enable hedge funds to reduce mispricings more forcefully than mutual funds.

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