fund is an actively managed investment fund that seeks an attractive absolute
return, that is, a return whether markets go up or down.
being equal, the greater the demand for a currency, the lower its price; the
lower the demand for a currency, the higher its price.
being equal, the greater the supply of a currency, the lower its price; the
lower the supply of a currency, the higher its price
oversupply of money in a country eventually leads to a decrease in the value of
the nation’s currency.
that current spot rate of MXP is MXP13 per USD. Expected inflation rate in
Mexico for the coming year is 12% and expected US inflation is 2%. What is the
approximate expected change in the value of USD against Mexican peso?
that the inflation rate becomes much higher in the U.K. relative to the U.S.
This will place upward pressure on the value of the British pound.
prices in Mexico and the US are MXP49 and $4.78 respectively. If the current
exchange rate (i.e. actual exchange rate) is MXP 14.63 per US dollar MXP is
_________ by ________%.
funds ______ engage in speculative market bets ______ take extensive derivative
cannot; and cannot
cannot; but can
can; and can
can; but cannot
None of these is correct
funds are ______ transparent than mutual funds because of ______ strict SEC
regulation on hedge funds.
None of these is correct
funds may invest or engage in
All of these are correct
corporate profits in the US are expected to increase, investors would expect to
earn higher returns on their investments. This would ______demand for US dollar
and _____the value of US dollar against other currencies.
year one dollar equaled one euro, and then the exchange rate shifted so that
today one dollar equals two euros, which of the following would most likely NOT
European firms would pay more
for raw materials imported from the United States.
European consumers would
purchase fewer U.S. products and services.
Fewer Europeans would travel to
the U.S. or study at U.S. universities.
European firms would lower
their prices on goods made with U.S. parts.
currency board regime, country’s central bank commits to back its money supply
entirely with foreign reserves at all times.
In a currency peg regime, a
country fixes its exchange rate against a major currencyl like US dollar or
Euro. This arrangement is expected to remove currency risk from trade and
investment flows. If the exchange rate is fixed at an undervalued rate as China
did 1990, this arrangement boosts exports of the country and attract
substantial investment. However, currency pegs are difficult to maintain.
an isolated example of a successful currency peg.
currency peg regime, central bank of the currency frequently intervenes to
maintain the peg. A case in point is Chinese peg against US dollar. During the
period China pegged its currency against US dollars, it had to intervene in the
currency markets and buy excess dollars to prevent appreciation of Yuan.
merger arbitrage, a hedge fund
Buys securities of the acquirer
Buys securities of the target
Short sells the securities of
the target firm
Short sells the securities of
the acquirer firm
Buys the securities of the
target firm and sells the securities of the acquirer firm
equity market neutral hedge fund strategy the manager identifies a group of
securities based on the fundamental value, growth rate, and price patterns,
then buys securities whose value is expected to increase and short sell
securities whose value is expected to decline. The investments in long and
short positons are usually similar and the net exposure to market is very low.
Since the portfolio’s net exposure to market is very low, portfolio performance
is insulated from market volatility.
high-inflation nations, increase in domestic prices reduces demand for these
countriesâ goods and therefore reduces demand for their currency. This leads to
depreciation of the high inflation countriesâ currencies.
It is argued that the rise of
Private Equity funds create value by operational, financial and Corporate
governance engineering. Corporate governance engineering refers to
debt-equity ratio of the firm
operational efficiency of the firm
managerial incentives, compensation and board oversight
off excess workforce to cut costs
poorly performing assets
mutual funds, hedge funds
allow private investors to pool
assets to be managed by a fund manager.
are commonly open to ordinary
are subject to extensive SEC
allow small investment accounts
are limited in what type of
risk they can take
The United States currently
uses a ________ exchange rate regime.
monetary authority in each country that regulates the money supply, issues
currency, and manages the exchange rate of the nation’s currency relative to
other currencies is called the Central Bank.
the following is a characteristic of the fixed exchange rate system?
utilized by most advanced
rates based on supply and
value of currency is fixed
relative to the value of another
allows for monetary policy
of the following is NOT accurate about Macro funds?
Macro funds aim to profit from
changes in global economic dynamics
They build their strategies to
take advantage of shifts in govt. policy that impact interest rates, in turn
affecting currency, stock, and bond markets
They extensively use
derivatives to amplify the gains from the market moves
They hedge their positions, but
largest performance impact is from the leveraged directional investments
Because they hedge their
positions, macro fund portfolios’ volatility are usually low.
of the following is a not one of the top Private Equity Firms?
Black Stone Group
Kohlberg, Kravis, Roberts (KKR)
of the following is not accurate about Hedge Funds?
Hedge Funds are relatively new
institutions that emerged after the massive wave of deregulation in financial
markets in 1980s and 1990s.
Hedge fund assets under
management have increased sharply from 2000 to 2007 and declined
substantially after the financial crisis.
Hedge Fund assets under
management started to recover its decline by 2010.
Including the considerable
leverage that hedge funds employ to boost returns, the industryâs gross
investment assets are estimated to be around $12 trillion.
Pension Funds have doubled
their hedge fund investments from 2006 to 2011.
of the following is not accurate about Hedge Funds?
takes both long and short
buys and sells undervalued
trades options on commodities,
stocks and bonds
invest in only high risk-high
of the following is not accurate about Private Equity Funds?
In 1980s Private Equity was
referred to as Leveraged Buy Outs or LBOs; but after LBOs got a bad name, the
term âprivate equityâ was adopted by these funds.
It is estimated that are now
somewhere around 2,700 funds that can mobilize half a trillion dollars for
investments. With leverage this represents an enormous amount of investment
and purchasing power.
20 years ago, there were
probably only four private equity firms that had $1 billion funds under
management. Today there are more than 150 firms of that size.
Today, Private Equity Funds
have reputation as corporate philanthropists and good corporate citizens;
communities strive to attract Private Equity funds to revitalize their
economies. Their impact on job creation and positive economic impact is
of the following is not accurate about Private Equity funds/firms?
Private equity firms provide
capital to private or publicly-traded businesses as an alternative to raising
funds through the public equity or debt markets.
Private equity firms often have
an industry focus,
Private Equity funds specialize
in investment in various types of companies from early stage to mature firms.
Private equity firms usually
acquire companies through âLeveraged Buy Outâ which requires substantial
amount of equity investment by the Private Equity Fund
of the following is not accurate for a distressed investment strategy?
It is an investment strategy
exploited by the Hedge Funds because majority of institutional investors are
not allowed to invest in below investment grade securities.
Hedge Funds use their expertise
in analysis of the true value of distressed securities and profit from the
market’s lack of understanding of the true value of the deeply discounted
The Hedge funds lose money if
the distressed companies cannot successfully reorganize and return to
Hedge funds profit from
distressed investments if the securities acquired in distressed firms are
senior debt and they are acquired at prices less than its liquidation value.
Hedge funds may also profit by
taking short positions in companies whose situations are expected to worsen,
rather than improve, in the short term.
of the following is/are among the key participants in FX markets?
All of the above
received CHF1,500,000 from your customer in Switzerland in exchange for your
shipment of a machinery. When you called your bank to exchange CHF into USD,
your bank quoted you the following rates: Bid Rate: $1.2010 per CHF and Offer
Rate: $1.2020 per CHF. How much USD you will receive in exchange for your CHF?
the dominant form of investing in securities markets for most individuals but
______ have enjoyed a far greater growth rate in the last decade.
Hedge funds; hedge funds
Mutual funds; hedge funds
Hedge funds; mutual funds
Mutual funds; mutual funds
None of these is correct.
You are an importer and
required to make a payment of EUR 10,000,000 in two days. You called the
banks around and you received the following quotes from the banks. Which one of
the following quotes will be best for you?(all the quotes below express bid and
offer rates in USDs per EURO).
25.A U.S. company buys from a
supplier whose currencyâs value is increasing against the dollar. Which of the
following will the company most likely have to do if the US company is billed
in the supplier’s currency and terms of the sales contract cannot be changed?
pay less in dollars than
pay more in dollars than
pay the same amount of
dollars as originally expected
pay part of the
transaction in the supplier’s currency
In class we have discussed
causes and implications of changes in the value of US dollar. Briefly explain
the reasons behind the appreciation of US dollar in the last six months and
also discuss its implications. As much as possible make references to specific
class discussions about this issue. Your answer should be substantive, clear
and to the point.
We discussed Chinese exchange
rate regime in several class sessions. Explain the each of the following
A. Why China decided to use a
currency peg against US dollar in 1990s?
B. Why China has allowed Yuan
to appreciate or practically decided to change its exchange rate regime?
C. Why China has almost
accumulated $4tr worth of reserves?