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ETFs 111: Investing in Alternatives with Exchange-Traded Funds

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1.
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.
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.
Inverse exchange-traded funds offer _______.
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The exact opposite return of a particular index. Thus the name 'inverse.'
5.
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.
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