AIP AIP Alternative Investments & Derivatives 1

Question 1

Which of the following best describes a hedge fund's use of leverage?

Accepted Answer

Leverage allows hedge funds to borrow capital to amplify potential returns

Answer

Hedge funds use leverage by borrowing capital to increase their position size, which can amplify both gains and losses.

Question 2

A call option gives the buyer the right to:

Accepted Answer

Purchase the underlying asset at the strike price before expiration

Answer

A call option grants the holder the right, but not the obligation, to buy the underlying asset at the predetermined strike price before or on expiration.

Question 3

What is a primary characteristic of private equity investments?

Accepted Answer

Long lock-up periods and limited liquidity

Answer

Private equity investments typically require investors to commit capital for extended periods, often 7–10 years, with limited ability to exit early.

Question 4

In futures trading, 'marking to market' refers to:

Accepted Answer

Daily settlement of gains and losses in a futures account

Answer

Marking to market means futures positions are revalued daily, with gains credited and losses debited from the trader's margin account each trading day.

Question 5

A swap agreement in which one party pays a fixed interest rate and receives a floating rate is called a:

Accepted Answer

Plain vanilla interest rate swap

Answer

A plain vanilla interest rate swap involves one counterparty paying a fixed rate while receiving a variable (floating) rate, typically tied to LIBOR or SOFR.

(AIP) Accredited Investment Professional Certification Practice Test

(AIP) Accredited Investment Professional Certification Practice Test

AIP AIP Alternative Investments & Derivatives 1