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1.
In order to provide amplified daily returns, leveraged ETFs may use swaps.
True. Swaps and other derivative contracts may be used to help augment returns.
2.
Leveraged and inverse ETFs are some of the most heavily traded ETFs on the market. This is a sign of _______.
The need to trade them daily in order to achieve their stated multiple over longer periods. Leverage ETFs are heavily traded because to function properly as a hedge, they require daily trading.
3.
A long-term investor considering investing in leveraged ETFs is probably better off _______.
Adjusting their asset allocation. Due to the high costs and the volatility drag, a long-term investor is usually better off adjusting their asset allocation rather than holding a leverage ETF.
4.
Due to their speculative nature, leveraged ETFs are suitable for average investors.
False. As a rule, they are more suited to professional traders, who can monitor and trade their positions daily.
5.
Over longer periods of time, an ETF's reduction in return due to volatility is known as _______.
Volatility drag. Volatility drag is the term used to describe the detrimental affect of volatility on long term, compound returns.
