CFA Level I · CFA Level I Exam · Hedge Funds
A long/short fund has USD 100 million of capital. It holds USD 120 million in long positions and USD 70 million in short positions. The fund's net exposure and gross exposure, as a percentage of capital, are closest to:
Net exposure is 50% and gross exposure is 190% of capital. Net equals longs minus shorts, (120 − 70)/100, while gross equals longs plus shorts, (120 + 70)/100. Gross exposure shows total leverage, and net exposure shows directional market risk.
- ANet 50%, gross 190%Correct
- BNet 50%, gross 120%
- CNet 190%, gross 50%
Explanation
Net exposure = (120 - 70)/100 = 50%. Gross exposure = (120 + 70)/100 = 190%. The second option ignores shorts in gross exposure by using only the long side, and the third swaps the two measures.
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