CAIA Level 1 Exam Study Guide

CAIA Level 1 Exam Study Guide Define investment - Investment is deferred consumption List the 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, and Structured Products Name the five structures that differentiate traditional and alternative investments - Regulatory Structures, Securities Structures, Trading Structures, Compensation Structures, and 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, and 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 identical assets or are not held over the same time period. What is the term for a private management advisory firm that serves a group of related and ultra- high net worth investors? - Family office In a large financial services organization, what is the name used to denote the people and processes that play a supportive role in the maintenance of accounts and information systems as well as in the clearance and settlement of trades? - Back office operations Are dealer banks described as buy-side or sell-side market participants? - Sell-side market participants List several advantages of Separately Managed Accounts relative to funds. - 1) A fund investor owns shares of a company (the fund) that in turn owns other investments, whereas an SMA investor actually owns the invested assets as the owner on record. 2) A fund invests for the common purposes of multiple investors, while an SMA may have objectives tailored to suit the specific needs of the investor, such as tax efficiency. 3) A fund is often opaque to its investors to promote confidentiality; an SMA offers transparency to its investors. 4) Fund investors may suffer adverse consequences from redemptions (withdrawals) and subscriptions (deposits) by other investors, but an SMA provides protection from these liquidity issues for its investors. Which of the following participants is LEAST LIKELY to be classified as an outside service provider to a fund: Arbitrageurs, accountants,