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:

Depreciation

The process by which capital assets decrease in value over time due to wear and tear or obsolescence.

Price Level

The mean cost across the full breadth of goods and services currently produced in the economy.

Production

The process of creating goods or services by combining labor, capital, and natural resources.

GDP

Gross Domestic Product, a measure of a country's economic performance, representing the total value of all goods and services produced over a specific time period.