You are offered shares in a no load open end global

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b. You are offered shares in a no-load, open-end global index mutual fund. What exactly is that? No-load- the management company is selling the fund directly itself and does not need to have a sales charge (which would be commission for the seller) rather than selling through a broker. Open-end which means there is no fixed number of shares and the price at which the new shares are sold and outstanding share redeemed is the net asset value of the portfolio (calculated at the end of the day). It is a global index fund so the funds invest in both foreign and U.S. securities. A mutual fund- an investment vehicle made up of a pool of moneys collected from many investors for investing in securities such as stocks, bonds, money market instruments and other assets. SO, you are being offered a fund from the management company itself where they have no fixed amount of assets, because this is global the fund could be foreign or a US security. 3. For each of closed-end funds, open-end funds, exchange traded funds, and hedge funds: a. How is liquidity improved? Closed-end funds- shares are transferable and you can liquidate your holding by selling shares to someone else in an exchange- you sell to someone else Open-end funds- can liquidate shares and sell them back (called redemption) at any time. pooling of large amount of funds from different investors creates liquidity- your shares are redeemable Exchange traded funds- traded on an exchange like closed-end funds, can liquidate by shelling shares to someone else- traded on exchange like close-end funds 10/7/2019 2
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Hedge funds- poor liquidity: positions are often less liquid than mutual funds, so investors are required to commit funds for a period of years with limited probability of withdrawal- not very liquid b. How is price determined? Closed-end funds- supply and demand Open-end funds- net asset value at the end of the day Exchange traded funds- supply and demand, also since it is redeemable for underlying shares, so simultaneous buying and selling of securities can bring price back up to net asset value Hedge funds- depends on stake of partnership, no consistent pricing strategy c. Could you take a leveraged position? If so, how? Leveraged position- borrowing money and selling it Closed-end funds- can’t really borrow because of regulations. Open-end funds- can’t really borrow because of regulations Exchange traded funds- a fund that uses financial derivatives and debt to amplify the returns of an underlying index. Leveraged ETFs are available for most indexes, such as the Nasdaq 100 and the Dow Jones Industrial Average. Hedge funds- yes you can borrow and leverage hedge funds, d. Could you take a short position? If so, how?
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