Sample Questions
Question 1
Easy
The Bear Stearns hedge fund failures of 2007 were primarily caused by:
Solution
A is correct.
The Bear Stearns High-Grade Structured Credit Strategies Fund and its Enhanced Leverage counterpart used significant leverage (up to 10:1 in the enhanced fund) to invest heavily in CDOs and other securities backed by subprime mortgages. When subprime defaults rose and these securities lost value, the leveraged losses quickly wiped out the funds' capital.
The Bear Stearns High-Grade Structured Credit Strategies Fund and its Enhanced Leverage counterpart used significant leverage (up to 10:1 in the enhanced fund) to invest heavily in CDOs and other securities backed by subprime mortgages. When subprime defaults rose and these securities lost value, the leveraged losses quickly wiped out the funds' capital.
Question 2
Medium
Which of the following best describes the four facets of purpose within the investment industry?
Solution
C is correct. The CAIA curriculum frames the purpose of the investment industry as four overlapping facets: the intrinsic purpose (mobilizing the sourcing and allocation of capital), the core purpose (wealth and risk management), the fundamental purpose (contributing to society through increases in societal wealth and well-being), and the collateral purpose (producing jobs, opportunities, and rewards for investment professionals). The other options list generic market mechanisms, operational functions, or oversight activities rather than the curriculum's four facets of purpose.
Question 3
Hard
According to the CAIA ethical framework, the relationship between professionalism and ethics is best characterized as:
Solution
A is correct.
In the CAIA framework, professionalism is the broader concept that encompasses technical competence, conduct standards, and ethical behavior. Ethics is an integral component of professionalism, meaning that one cannot be truly professional without adhering to ethical principles.
In the CAIA framework, professionalism is the broader concept that encompasses technical competence, conduct standards, and ethical behavior. Ethics is an integral component of professionalism, meaning that one cannot be truly professional without adhering to ethical principles.
