What is risk in terms of business?Risk in business is associated with loss in any investment/business venture. It is also connected with loss of invested money/capital in any of the bu ... [read more]
Who originated the concept of hedge funds?
Alfred Winslow Jones is considered the father of modern businesses risk avoiding strategies.
What is speculation?
Speculation is a process of seeking return by taking higher risks.
Which Theory deals with the concept of generation of return from investment?
Modern Portfolio theory (MPT) deals with generation of return from investment.
Do all hedge managers follow the bookish strategies of hedge funds?
Hedge funds manager uses mix of his or her own tools. The exact strategy used by any hedge fund manager is not fully known . However, they employ fund ... [read more]
Two persons were going for a sidewalk, both saw a $20 bill lying on the road. One said that it is not real bill, while the other picked it up and said to his fellow that if it was a real bill, he would offer him a free lunch. In this example which phenomenon is utilized by the person who has picked the $20 bill?
This is a classic example of arbitrage. Arbitrage is extensively used by hedge fund managers. The one who picked up the bill can be called as hedge fu ... [read more]
Riskless Arbitrage is possible on all the occasion. Comment on the statement?
Riskless Arbitrage is possible on rare occasions. Businesses based on the free risk cannot last due to ever changing situation of the market.
What are three forms of market efficiency?
Market efficiency can be divided into strong form, semi-strong form and weak form.
What is the meaning of arbitrage?
Arbitrage is a French word, which means judgment.
Can capital structure of a business is utilized for profitability?
A business uses different types of financing. The pricing difference between this different type can occur which can be utilized by intelligent handli ... [read more]
Can fixed return investments be used to profitability?
Fixed income investment gives holder a fixed rate of interest. These rate of interests can change or vary on different available options. Subject vari ... [read more]
Which type of strategy is used for profitability in fixed return investments?
Fixed-Income arbitrage is used for profitability in fixed return investments.
What is a market index?
Market index provides the information regarding the activities in market. It is based on performance of the group of the securities trade in the marke ... [read more]
Why Market index arbitrage is employed by only large hedge funds?
Owing to limitation of market index buying, only large hedge funds can use this strategy.
The assets held by a business do not reflect its market value. Comment on the statement?
The market value of a business is mainly dependent on the performance of its product. Businesses also holds other assets like real estate, patents and ... [read more]
Liquidation Arbitrage deals with breakup value of a business. True or false?
It is true. Liquidation arbitrage relies on research carried out on the assets held by a breaking up business, which are not part of its market value.
Merger Arbitrage relies on which type of research?
It relies on research carried out after the announcement of merger with another company.
Which variables are listed in a merger announcement?
A merger announcement contains information of the company taking over, the company, which has to be acquired, price of transaction, currency and expec ... [read more]
What is the difference between a liquidation arbitrage and merger arbitrage?
Liquidation arbitrage is based on research conducted before the breakup or merger of a business. While merger arbitrage deals with the research conduc ... [read more]
Which are two common options available in trading?
Calls and puts are the two common options available in trading. Call deals with the price of security going up while the put deals with vice versa sce ... [read more]
What is the difference between European and American options?
American option allows their usage only on expiration date while the European options allow their usage from date of issue till date of expiration.
Pairs trading is used which type of hedging?
Pair trading uses short long hedging. It exploits the differences between securities in a given industry sector.
What is Bid-Ask ratio?
Bid-Ask ratio is the difference between the price at which the broker buys from a seller and price at which the broker sells to the buyer.
Which type of hedge fund strategy utilizes the spread of bid-ask ratio?
Scalping utilized the variation in spread of Bid-ask ratio to make profits.
Which hedge fund strategy extensively uses mathematical modeling?
Statistical Arbitrage used mathematical modeling of involved securities.
How average pricing is determined in statistical arbitrage?
Large databases of security prices are used to determine the trend or average price of concerned security.
What is the difference between warrant and option?
A company issues a warrant while the option is issued by an option exchange.
How profit is made in short selling?
In short selling profit is made from buying, selling and repurchasing of a declining security.
Is leverage a risk free strategy?
Leverage is not risk free funds hedge strategy.
What is the disadvantage associated with leverage?
In leverage, the borrowed money has to be returned no matter how the trade has worked.
What is a synthetic security?
Synthetic security is made up of matching of one asset by combination of few others having same profit and loss profile.
How an investor gives up risk in short selling?
By shorting of an asset, the investor gives up the risk of price decline of the same asset.
Which strategy allows the magnification of returns in a hedge fund?
Leverage allows the magnification of returns of a hedge fund.
How a hedge fund manager earns?
A hedge fund manager charges a fee for management of funds. These fees are the source of income for hedge funds manager.
