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ETFs 111: Investing in Alternatives with Exchange-Traded Funds

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1.
In order for an inverse exchange-traded fund to provide several times an index's return, it must use leveraging.
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True. Along with compounding, such a fund would use leverage to achieve its aim in a bear market.
2.
When investing in currencies via exchange-traded funds, a long position in one currency always means a _______ in another currency.
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Short position. The two positions are used in tandem.
3.
What does a buy-write stock-index strategy do?
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Sells call options on a stock index. A buy-write or covered-call writing strategy writes or sells call options on a stock index, such that if the call is exercised, it is "covered," and the cash-value of the index can be delivered to the holder of the option. The premium received from writing the calls provides some protection against losses on underlying stock index, but also caps the gains on the index.
4.
Merger arbitrage involves buying stocks that are acquisition targets and _______.
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Shorting the stocks of the acquiring companies or a broad index of stocks. Merger arbitrage is a type of long-short strategy.
5.
What is a hedge-fund replication strategy?
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One that attempts to match the returns of an index of hedge funds through ETF, futures, or swap contracts. A hedge fund replication strategy takes long and short positions in ETFs, futures, and swaps to mimic the returns of a hedge fund index in an ETF or mutual fund vehicle. These strategies can provide equity-like returns with less volatility than equity indexes.