Practice Quiz

FINRA Series 6

Category - Series 6

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Which of the following is true about a hedge fund?
  1. It is designed to help investors hedge their risk and, as such, is a low risk alternative to a mutual fund.
  2. It is closed to all but sophisticated, wealthy investors.
  3. It is more liquid than almost any investment other than a money market mutual fund.
  4. It has very low management fees since it is passively managed.
Explanation
Answer: B - A hedge fund is closed to all but sophisticated, wealthy investors. Hedge fund managers engage in riskier strategies than mutual fund managers. They are fairly illiquid; the redemption of shares is restricted. They are actively managed, and management fees are much higher than those charged by other types of funds.
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