Which of the Following Indicates Why the Role of Vigilant

question 4

Multiple Choice

Which of the following indicates why the role of vigilant investors is important for the efficient operation of an economy?

• A) These investors generally serve on the boards of directors of corporations.
• B) These investors tend to buy and sell stocks in a way that provides feedback to management about the quality of its decisions.
• C) These investors help allocate capital efficiently among investment projects.
• D) Both b and c are true.

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Definitions:

Market Neutral

An investment strategy that seeks to avoid some forms of market risk by taking offsetting positions in different securities, aiming for a net market exposure of zero.

Government Regulation

The act of controlling business behavior through a set of rules or laws set forth by the government to achieve outcomes that might not be achieved through free markets.

Incentive Fee

An incentive fee is a fee charged by a fund manager based on the fund's performance, encouraging the manager to achieve superior returns.

Benchmark

A standard or point of reference against which the performance of a security, mutual fund, or investment manager can be measured.