Graded quiz on the content of Module 3

Graded quiz on the content of Module 3 >> Understanding Financial Markets

Into which of the following (explicit and implicit) barriers for investing in emerging market equity would you classify such an event?

1 point

10-year Indian bond issued in local currency: 8%
8-year Indian bond issued in US dollar: 6%
10-year US bond issued in US dollar: 4%
8-year US bond issued in US dollar: 3%

Which of the following statement is/are true?

1 point

You have enough information to adequately compute the 8-year Indian-US yield spread.

You do not have enough information at your disposal to adequately compute the 10-year Indian-US yield spread.

The 8-year Indian-US yield spread stands at 3% and suggests that 8-year Indian bonds are riskier than 8-year US bonds.

The 10-year Indian-US yield spread stands at 40 basis points.

This picture was taken in Germany in 1923 and shows children playing with stacks of banknotes.

Which of the following statements are true?

1 point

In cases of hyperinflation, people tend to wait for the last moment to use their wage to buy goods.

In this kind of scenario, holding gold should be avoided at all costs.

This picture illustrates the effects of hyperinflation (i.e. when a country experiences very high and accelerating inflation rates that erode the real value of money).

Gold can serve as a hedge in times of hyperinflation because its supply cannot be increased as easily as banknotes. In other words, it is very unlikely that we will one day see children play with bars of gold.

The fact that the real value of money was very low could explain why these children were allowed to play with stacks of banknotes.

1 point

When investing in real estate assets, local knowledge is important.

There are no pronounced cycles in the aggregate price of real estate assets.

Real estate assets are not very liquid (i.e. it takes time to sell them) and lack transparency (i.e. it is hard to gain access to transaction prices).

Real estate assets have a high unit value.

The value of real estate assets is easy to estimate.

Real estate assets are homogeneous (i.e. the characteristics of two real estate assets are generally the same).

1 point

Direct investments in real estate assets are fairly liquid (i.e. they can be sold quite quickly).

Direct investments in real estate assets have a trait in common with shares of companies traded on stock exchanges: both have a high unit value.

Indirect investments in real estate encompasses non-listed funds (i.e. private real estate) and securitized investments (i.e. public real estate).

The shares of non-listed real estate funds are traded on stock exchanges.

1 point

Hedge fund managers are asked by their clients to invest a significant part of their own wealth in the fund they manage to make sure that they will not pursue some silly strategy.

Their fundamental objective is to achieve positive performance irrespective of market conditions.

They have to be permanently invested.

Hedge fund managers usually charge fees on both the the assets they manage but also on the performance they deliver.

The first “long-short” equity fund was created by Alfred Winslow Jones because he wanted to bet on the over-performance of some firms and the under-performance of other firms while having a neutral view on the direction of the stock market as a whole.

Leverage has the advantage of boosting positive gains while not affecting losses.

Pete thinks that both company ABC and XYZ will perform equally well.
Mary thinks that company XYZ will perform badly but has neutral views on the performance of company ABC.
Roger thinks that company XYZ will perform badly while company ABC will perform very well.
Lucy thinks that company ABC will perform well but has neutral views on the performance of company XYZ.

Given their views, which of the following sets of strategies are the one they are most likely to pursue?

1 point

Pete will have two long positions of equal size in the stocks of ABC and XYZ.
Mary will have a short position in the stock of XYZ.
Roger will have a short position in the stock of ABC and a long position in the stock of XYZ.
Lucy will have a long position in the stock of ABC.

Pete will have two long positions of equal size in the stocks of ABC and XYZ.
Mary will have a short position in the stock of ABC.
Roger will have a short position in the stock of XYZ and a long position in the stock of ABC.
Lucy will have a long position in the stock of XYZ.

Pete will have two long positions of equal size in the stocks of ABC and XYZ.
Mary will have a short position in the stock of XYZ.
Roger will have a short position in the stock of XYZ and a long position in the stock of ABC.
Lucy will have a long position in the stock of ABC.

Pete will have a short position in the stock of XYZ.
Mary will have two long positions of equal size in the stocks of ABC and XYZ.
Roger will have a long position in the stock of ABC.
Lucy will have a short position in the stock of XYZ and a long position in the stock of ABC.

Roger will have two long positions of equal size in the stocks of ABC and XYZ.
Mary will have a short position in the stock of XYZ.
Pete will have a short position in the stock of XYZ and a long position in the stock of ABC.
Lucy will have a long position in the stock of ABC.

1 point

Private companies tend to be at an earlier stage of development and hence it is relatively easy to pick exceptionally successful companies among these.

An advantage that private investments have over public investments is their lack of liquidity.

Public companies are traded on stock exchanges and are not required to disclose financial accounts and earnings.

“Unicorns” are private companies that have reached a valuation in excess of $1 billion.

Professional private equity investor tend to take an active role in running the companies in which they hold equity.

Private companies tend to be smaller companies that cannot access financial markets.

Graded quiz on the content of Module 3 >> Understanding Financial Markets

Graded quiz on the content of Module 3

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