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ETFs 112: What to Know about Exchange-Traded Notes

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1.
How can investors protect themselves from the credit risk inherent in owning an exchange-traded note?
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By monitoring the financial situation of the issuing bank, and selling out if warning signs appear. The other three options are ways to mitigate the market risk of the investment, not the credit risk.
2.
A sizable premium or discount on an exchange-traded note could be a red flag. Why?
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Either of the above. Either of these situations could lead to big premiums or discounts on an exchange-traded note.
3.
Distributions from exchange-traded notes are taxed at _______.
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Ordinary income rates. Distributions, though rare, are taxed at ordinary income rates.
4.
Exchange-traded notes are similar to traditional exchange-traded funds. Therefore, they are funds.
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False. They are essentially bonds, not funds. They do not hold a fundful of securities.
5.
When it comes to earning money on them, exchange-traded notes promise investors _______.
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The return on a given index minus fees. ETNs follow a given index and promise returns based on that. They do not guarantee that return, however.