Sample Exam I | The ETF Institute

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Question 1 of 10

1. Question
Which of the following was the first exchange-traded fund to list on a U.S. exchange?
- SPDR S&P 500 ETF Trust (SPY)
- Invesco QQQ Trust (QQQ)
- SPDR Dow Jones Industrial Average ETF Trust (DIA)
- iShares Russell 2000 ETF (IWM)
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Question 2 of 10

2. Question
When large blocks of ETF shares are redeemed, individual underlying holdings:
- Are selected at random from the trust's holdings
- With the highest cost basis are typically provided to the redeemer
- With the lowest cost basis are typically provided to the redeemer
- Are always sold for cash rather than distributed in-kind
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Question 3 of 10

3. Question
A characteristic of ETFs structured as Unit Investment Trusts (UITs) is that they:
- Are actively managed and can deviate from their index
- Have a termination date
- Automatically reinvest all dividends daily
- Cannot use a representative sampling strategy
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Question 4 of 10

4. Question
Which federal law generally requires the firm managing an ETF’s portfolio to register as an investment adviser with the SEC?
- Securities Act of 1933
- Securities Exchange Act of 1934
- Sarbanes-Oxley Act of 2002
- Investment Advisers Act of 1940
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Question 5 of 10

5. Question
A fund’s liquidity classification shows 12% of net assets in illiquid investments. Market conditions subsequently push this to 17%. Under Rule 22e-4, the fund must:
- Report the breach to its board and to the SEC, and may not acquire additional illiquid investments.
- Immediately liquidate enough illiquid holdings to return the classification below 15% within five business days.
- Suspend redemptions until the illiquid investment percentage falls back under the 15% threshold.
- Face no formal notification requirement as long as the breach is temporary and self-corrects within the same quarter.
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Question 6 of 10

6. Question
In a smart beta ETF strategy, a “factor” (such as value, momentum, or quality) is best described as:
- A fixed dollar allocation target
- A regulatory classification assigned by the SEC
- A measurable characteristic believed to help drive long-term excess returns
- A synonym for market-capitalization weighting
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Question 7 of 10

7. Question
Over a twelve-month period, spot crude oil rose 12% while a futures-based crude oil ETP returned 3%. The most likely primary explanation is:
- The ETP's expense ratio was unusually high that year, consuming most of the spot price appreciation.
- Persistent contango produced negative roll yield as expiring contracts were rolled into higher-priced later months.
- Backwardation in the futures curve caused the fund to consistently roll into lower-priced contracts, eroding returns.
- The ETP was systematically underweighted to crude oil relative to its stated benchmark, muting its participation in the spot price rise.
Correct

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Question 8 of 10

8. Question
Which characteristic most explains why gold is practical to hold in a physically-backed ETP while natural gas is not?
- Gold is exempt from mark-to-market custody requirements under the Investment Company Act, while natural gas is not.
- Natural gas cannot be held in a grantor trust structure because it is classified as a derivative rather than a physical commodity.
- Gold has significantly higher daily price volatility than natural gas, making futures-based exposure impractical for gold ETPs.
- Gold's storage cost is negligible relative to its value per unit of weight, whereas natural gas storage costs consume a large share of the commodity's value.
Correct

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Question 9 of 10

9. Question
If the unleveraged index of a 2x daily leveraged ETF gained 8% on Day 1 and then declined 10% on day two, the overall loss for the leveraged fund over the two trading days is:
- 7.2%
- 4.0%
- 10.0%
- 14.4%
Correct

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Question 10 of 10

10. Question
An investor places a limit order to buy an ETF at $50.00 while the current market price is $50.25. Under which condition will this order execute?
- Immediately, since limit orders always fill at the next available price
- Only after the market closes
- Only if the market price falls to $50.00 or lower
- Only if the investor also places a stop order
Correct

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