FRM Part II · FRM Exam Part II · Hedge Fund Investment Strategies
A hedge fund manager runs a long/short equity fund with 100% of capital in long positions and 40% of capital in short positions. What are the fund's gross exposure and net exposure, respectively, as a percentage of capital?
Gross exposure is longs plus shorts, which is 140% of capital, and net exposure is longs minus shorts, which is 60%. Gross measures total capital at work and leverage, while net measures directional market exposure.
- A140% gross; 60% netCorrect
- B140% gross; 140% net
- C60% gross; 140% net
- D100% gross; 60% net
Explanation
Gross exposure is the sum of long and short market values: 100% + 40% = 140%. Net exposure is long minus short: 100% - 40% = 60%. Adding the two sides for net exposure, or subtracting them for gross, confuses the definitions.
Did you get it right without looking?
One question tells you little. A timed set on Hedge Fund Investment Strategies shows your real accuracy, how long you take and where you lose marks.
More Hedge Fund Investment Strategies questions
- An equity market neutral fund holds long positions of USD 100 million and short positions of USD 100 million. The long book has a beta of 1.…
- An equity market neutral fund is constructed to be dollar neutral and beta neutral, but it suffers large losses during a sudden market rotat…
- A hedge fund buys a convertible bond and shorts a number of the issuer's shares equal to the bond's delta times the number of shares into wh…
- In a stock-for-stock merger, Acquirer A will exchange 0.5 shares of A for each share of Target T. A merger arbitrage fund wishes to capture …
- A hedge fund manager runs a cash-deal merger arbitrage book. Which description best captures the typical payoff profile of this strategy?
- A fixed income relative value fund holds a long position in an off-the-run 10-year Treasury and a short position in the on-the-run 10-year T…