Sample Exam Questions

A characteristic of ETFs structured as Unit Investment Trusts (UITs) is that they:

• Have an indefinite life
• Have a termination date
• Do not trade intraday on an exchange
• Distribute dividends immediately

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:

• 2.8%
• 4%
• 7.2%
• 14.6%

ETNs have all of the following characteristics except:

• Their returns are linked to the return of a market benchmark
• They can be shorted
• They distribute dividends and other distributions from a benchmarked index
• They trade on stock exchanges

Which of the following statements is true regarding ETFs?

• Individual investors have the ability to purchase and redeem ETF shares directly from the ETF provider in creation units
• The creation and redemption of ETFs is generally regarded as “in-kind” exchanges of assets
• They sell or redeem their individual shares at net asset value
• All of the above

When large blocks of ETF shares are redeemed, individual underlying holdings:

• With the highest cost basis are typically provided to the redeemer
• With the lowest cost basis are typically provided to the redeemer
• With the highest cost basis are exchanged for holdings with the lowest cost basis by the redeemer
• With the lowest cost basis are exchanged for the shares with the highest cost basis by the redeemer