RE: Item Set Questions on Mock Exam. Mont and Duke Case

[veryjasper]

Mont:
Regarding question #5, choice B) increase exposure to the crossover sector, what is “crossover sector?” and why it is not an answer (I know C is a good answer, but I don’t get what choice B) is all about).
Duke:
Q2. Energy is considered as commodity, really?
Q4. Choice B) “the index fund only earns the risk-free rate minus costs in the long term.” Why is this true?

 

[kmj2318]

The cross-over sector is the lowest investment grade rating, and the next lowest rating. Ratings changes have a large impact in this sector because when a security is downgraded to less than investment grade, many clients have to dump it because of constraints. On the other hand, when a security becomes investment grade, many more clients can buy
There’s not enough info for the other 2 for me.

 

[horas]

veryjasper wrote:
Mont:
Regarding question #5, choice B) increase exposure to the crossover sector, what is “crossover sector?” and why it is not an answer (I know C is a good answer, but I don’t get what choice B) is all about).
Duke:
Q2. Energy is considered as commodity, really?
Q4. Choice B) “the index fund only earns the risk-free rate minus costs in the long term.” Why is this true?

Q4 because derivatives investing is a zero sum game and passive investors can only earn a risk free especially for managed futures.

 

[hamada.smaili]

Regarding Q2 I can’t understand something. Ok so the answer says the Position 2: Global energy equity index fund is an indirect commodity because its made of of stocks. How is this different from position #1 which is the GSCI Non-Enbergy Index Futures, they way I see it Index futures are also made up of stocks so they should be an indirect commodity as well?

 

[jackKicker]

hamada.smaili wrote:
Regarding Q2 I can’t understand something. Ok so the answer says the Position 2: Global energy equity index fund is an indirect commodity because its made of of stocks. How is this different from position #1 which is the GSCI Non-Enbergy Index Futures, they way I see it Index futures are also made up of stocks so they should be an indirect commodity as well?

That’s not the best answer since stocks in general can represent all sorts of companies, which may or may not be commodity related.

 

[Nininiya]

gsci non-energi imdex futures is futures of gsci commodity index (excluding energy-related commods). it is future of a commodity index, while the global energy equity index futures is an futures of a stock index.