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CAIA Master Glossary Exam Questions with Correct Answers.
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CAIA Master Glossary Exam Questions with Correct Answers.CAIA Master Glossary Exam Questions with Correct Answers.
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CAIA Master Glossary Exam Questions with CorrectAnswers.
Absolute return products - Correct Answer Absolute return products are investment
products viewed as having little or no return correlation with traditional assets, and have
investment performance that is often analyzed on an absolute basis rather than relative
to the performance of
Traditional investments.
absolute return standard - Correct Answer An absolute return standard means that
returns are to be evaluated relative to zero, a fixed rate, or relative to the riskless rate,
and therefore independently of performance in equity markets, debt markets, or any
other markets.
Active management - Correct Answer Active management refers to efforts of buying
and selling securities in pursuit of superior combinations of risk and return.
Active return - Correct Answer Active return is the difference between the return of a
portfolio and its benchmark that is due to active management.
Active risk - Correct Answer Active risk is that risk that causes a portfolio's return to
deviate from the return of a benchmark due to active management.
Alternative investments - Correct Answer Alternative investments are sometimes viewed
as including any investment that is not simply a long position in traditional
Investments.
Benchmark - Correct Answer A benchmark is a performance standard for a portfolio that
reflects the preferences of an investor with regard to risk and return.
Benchmark return - Correct Answer a benchmark return is the return of the benchmark
index or benchmark portfolio.
Commodities - Correct Answer Commodities are homogeneous goods available in large
quantities, such as energy products, agricultural products, metals, and building
materials.
Compensation structure - Correct Answer Compensation structure refers to the ways
that organizational issues, especially compensation schemes, influence particular
investments.
Distressed debt - Correct Answer Distressed debt refers to the debt of companies that
have filed or are likely to file in the near future for bankruptcy protection.
,Diversifier - Correct Answer a diversifier is an investment with a primary purpose of
contributing diversification benefits to its owner.
Efficiency - Correct Answer Efficiency refers to the tendency of market prices to reflect
all available information.
Farmland - Correct Answer Farmland consists of land cultivated for row crops (e.g.,
vegetables and grains) and permanent crops (e.g., orchards and vineyards).
Financial asset - Correct Answer A financial asset is not a real asset—it is a claim on
cash flows, such as a share of stock or a bond.
Hedge fund - Correct Answer a hedge fund as a privately organized investment vehicle
That uses its less regulated nature to generate investment
Opportunities that are substantially distinct from those offered by traditional investment
vehicles, which are subject to regulations such as those restricting their use of
derivatives
And leverage.
Illiquidity - Correct Answer Illiquidity means that the investment trades infrequently or
with low volume (i.e., thinly).
Incomplete markets - Correct Answer Incomplete markets refer to markets with
insufficient distinct
Investment opportunities.
Inefficiency - Correct Answer Inefficiency refers to the deviation of actual prices from
valuations that would be anticipated in an efficient market.
Information asymmetries - Correct Answer Information asymmetries refer to the extent
to which market participants possess different data and knowledge.
Infrastructure investments - Correct Answer Infrastructure investments are claims on the
income of toll roads, regulated utilities, ports, airports, and other real assets
That are traditionally held and controlled by the public sector
(i.e., various levels of government).
Institutional structure - Correct Answer Institutional structure refers to the financial
markets and financial institutions related to a particular investment, such as
Whether the investment is publicly traded.
Institutional-quality investment - Correct Answer An institutional-quality investment is the
type of investment that financial institutions such as pension funds or
Endowments might include in their holdings because they are
Expected to deliver reasonable returns at an acceptable level
Of risk.
,Investment - Correct Answer An investment is that it is deferred consumption. Any net
outlay of cash made with the prospect of receiving future
Benefits might be considered an investment.
Land - Correct Answer Land comprises a variety of forms, including undeveloped land,
timberland, and farmland.
Lumpy assets - Correct Answer Lumpy assets are assets that can be bought and sold
only in specific quantities, such as a large real estate project.
Mezzanine debt - Correct Answer Mezzanine debt derives its name from its position in
the capital structure of a firm: between the ceilings of senior
Secured debt and the floor of equity.
Moral hazard - Correct Answer Moral hazard is that risk that the behavior of one or
more parties will change after entering into a contract.
Operationally focused real assets - Correct Answer Operationally focused real assets
include real estate, land, infrastructure, and intellectual property.
passive investing - Correct Answer Passive investing tends to focus on buying and
holding securities in an effort to match the risk and return of a target, such as a highly
diversified index.
Private equity - Correct Answer The term private equity is used in the CAIA curriculum
to
Include both equity and debt positions that, among other
Things, are not publicly traded.
Pure arbitrage - Correct Answer Pure arbitrage is the attempt to earn risk-free profits
through
The simultaneous purchase and sale of identical positions
Trading at different prices in different markets.
Real assets - Correct Answer Real assets are investments in which the underlying
assets involve direct ownership of nonfinancial assets rather than ownership through
financial assets, such as the securities of manufacturing or service enterprises.
Real estate - Correct Answer Real estate focuses on land and improvements that are
permanently affixed, like buildings.
Regulatory structure - Correct Answer Regulatory structure refers to the role of
government,
Including both regulation and taxation, in influencing the
Nature of an investment.
, Relative return standard - Correct Answer a relative return standard means that returns
are to be evaluated relative to a benchmark.
return diversifier - Correct Answer If the primary objective of including the product is the
reduction in the portfolio's risk that it is believed to offer through its lack of correlation
with the portfolio's other assets, then that product is often referred to as a return
diversifier.
Return enhancer - Correct Answer If the primary objective of including an investment
product in a portfolio is the superior average returns that it is believed to offer, then that
product is often referred to as a return enhancer.
Securities structure - Correct Answer Securities structure refers to the structuring of
cash flows through leverage and securitization.
Structured products - Correct Answer Structured products are instruments created to
exhibit particular return, risk, taxation, or other attributes.
Timberland - Correct Answer Timberland includes both the land and the timber of
forests of tree species typically used in the forest products industry.
Trading structure - Correct Answer Trading structure refers to the role of an investment
vehicle's investment managers in developing and implementing trading strategies.
Traditional investments - Correct Answer Traditional investments include publicly traded
equities, fixed-income securities, and cash.
40 Act funds - Correct Answer Mutual funds, or '40 Act funds, are registered investment
pools offering their shareholders pro rata claims on the fund's portfolio of assets.
Back office operations - Correct Answer Back office operations play a supportive role in
the maintenance of accounts and information systems used to transmit important
market and trader information in all trading transactions, as well as in the clearance and
settlement of the trades.
Bid-ask spread - Correct Answer The price difference between the highest bid price (the
best bid price) and the lowest offer (the best ask price) is the bid-ask spread.
Buy side - Correct Answer Buy side refers to the institutions and entities that buy large
quantities of securities for the portfolios they manage.
Closed-end mutual fund - Correct Answer Closed-end mutual fund structures provide
investors with relatively liquid access to the returns of underlying assets even when the
underlying assets are illiquid.
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