5-89 the Hedge Fund Industry Is Built on the Theory

question 14

Multiple Choice

5-89 The hedge fund industry is built on the theory that

• A)a profit can always be made if each investment has an off-setting position to cover any losses.
• B)proper diversification can be attained with larger sums of money and fewer assets.
• C)wealthy individuals should be expected to make more informed investment decisions and can take on higher levels of risk.
• D)strategies such as program trading and arbitrage are only successful if leverage (borrowed funds)are used.
• E)it takes money to make money.

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Definitions:

Aggregate Economic Rent

The total earnings that factors of production receive over and above their opportunity cost, representing the extra income derived from resource ownership.

Ceteris Paribus

A Latin phrase meaning "all other things being equal," used in economics to isolate the effect of one variable change on an outcome.

Surplus Payments

Payments made above the market price, often by a government to producers, to encourage production or as a form of subsidy.

Economists

Professionals who study and apply theories and concepts related to economies, analyzing trends and advising on economic policy.