CAIA - CHAPTER 1 REVIEW QUESTIONS AND ANSWERS.

Define investment Investment is deferred consumption. List four major types of real assets other than land and other types of real estate. Natural resources, commodities, infrastructure and intellectual property List the three major types of alternative investments other than real assets in the CAIA curriculum Hedge Funds, Private Equity, Structured Products Name the five structures that differentiate traditional and alternative investments Regulatory Structures, Securities Structures, Trading Structures, Compensation Structures, Institutional Structures Which of the five structures that differentiate traditional and alternative investments relates to the taxation of an instrument? Regulatory Structures Name the four return characteristics that differentiate traditional and alternative investments. Diversification, Illiquidity, Inefficiency, Nonnormality Name four major methods of analysis that distinguish the analysis of alternative investments from the analysis of traditional investments. Return Computation Methods, Statistical Methods, Valuation Methods, Portfolio Management Methods Describe an incomplete market. An incomplete market refers to the lack of investment opportunities that causes market participants to be unable to implement an investment strategy that satisfies their exact preferences such as risk preferences. Define active management. Active management refers to efforts of buying and selling securities in pursuit of superior combinations of risk and return. What distinguishes use of the term pure arbitrage from the more general usage of the term arbitrage? Pure arbitrage is risk-free, while arbitrage, as a more general term, is not risk-free. Pure arbitrage is an attempt to earn risk-free profits through the simultaneous purchase and sale of identical positions trading at different prices in different markets. Whereas, arbitrage is used to represent efforts to earn superior returns even when risk is present because the long and short positions are not in identical assets or