CIMA Investment Vehicles and Strategies 2

Question 1

A hedge fund employs a long/short equity strategy. If the fund is net long 60% and net short 40%, what is the fund's net market exposure?

Accepted Answer

20%

Answer

Net market exposure equals net long minus net short positions: 60% - 40% = 20%.

Question 2

Which feature distinguishes a closed-end fund from an open-end mutual fund?

Accepted Answer

Closed-end funds issue a fixed number of shares traded on exchanges

Answer

Closed-end funds have a fixed share count and trade on exchanges, often at premiums or discounts to NAV.

Question 3

A commodity-linked structured note provides principal protection and upside participation in crude oil prices. This product combines:

Accepted Answer

A zero-coupon bond and a long call option on oil

Answer

Principal-protected notes typically embed a zero-coupon bond (to guarantee return of principal) and a call option (to provide upside participation).

Question 4

An investor in a Master Limited Partnership (MLP) receives distributions. For tax purposes, most MLP distributions are treated as:

Accepted Answer

Return of capital, reducing the investor's cost basis

Answer

Most MLP distributions are considered return of capital, deferring taxes and reducing the investor's adjusted cost basis.

Question 5

Which strategy best describes a risk arbitrage approach in a merger situation?

Accepted Answer

Buy target shares and short acquirer shares to capture the deal spread

Answer

Risk (merger) arbitrage involves buying the acquisition target and shorting the acquirer to capture the spread between current price and deal price.

(CIMA) Certified Investment Management Analyst Practice Test