CAIA CAIA Risk Management 3

Question 1

The Calmar Ratio measures risk-adjusted performance by dividing annualized return by:

Accepted Answer

Maximum drawdown

Answer

Annualized standard deviation

Answer

Value at Risk

Answer

Beta to the S&P 500

Question 2

Leverage amplifies both returns AND risks in alternative investments; a fund with 3x leverage and a 10% asset decline will experience approximately what portfolio loss?

Accepted Answer

30%

Answer

10%

Answer

20%

Answer

3%

Question 3

The 'contagion risk' most relevant to alternative investment portfolios refers to:

Accepted Answer

The spread of financial distress across markets or strategies due to forced selling and deleveraging

Answer

Disease risk affecting commodity supply chains

Answer

Regulatory changes in one country affecting funds domiciled elsewhere

Answer

Currency devaluation spreading across emerging market economies

Question 4

Which metric best captures the risk-adjusted return of a strategy relative to its systematic (market) risk exposure?

Accepted Answer

Treynor Ratio

Answer

Sharpe Ratio

Answer

Sortino Ratio

Answer

Information Ratio

Question 5

In alternative investments, 'key person risk' refers to:

Accepted Answer

The risk that a fund's performance is highly dependent on one or a few specific individuals whose departure would be detrimental

Answer

The risk that a fund's prime broker withdraws financing

Answer

The risk of unauthorized access to fund systems by key personnel

Answer

The risk that regulatory key persons (directors) fail to file required documents

Question 6

Basis risk in a hedged alternative investment position occurs when:

Accepted Answer

The hedge instrument and the underlying position do not move in perfect lockstep, leaving a residual unhedged exposure

Answer

The hedge instrument perfectly offsets the underlying position's gains and losses

Answer

A hedge fund manager lacks a basis for investment decisions

Answer

The risk-free rate changes while the hedge is in place