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CFA® Level I Question of the Day

CFA® Level I Question of the Day

Kaplan Schweser's CFA® Question of the Day begins in October 2016 and runs through Exam Day. Below you will find the answers for our Level I Question of the Day emails.

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April 29

By Kaplan Schweser | Posted on April 29, 2017


Answer to Level I Question: A

Answer Explanation: Being listed on international exchanges increases investor awareness about the company's products and services, and raises the transparency and credibility of the company due to the need to meet a greater number of filing requirements, both of which factors could translate into marketing opportunities.

Choice "b" is incorrect.  Being listed on foreign exchanges does not preclude companies from complying with all regulatory…

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April 28

By Kaplan Schweser | Posted on April 28, 2017


Answer to Level I Question: B

Answer Explanation: Because the trader expects the shares to fall, the best course of action would be to short the company's shares.  By shorting the stock (selling shares not personally owned), the trader can profit by closing the position (repurchasing the same number of shares at a lower price) at a later date.  Note that the trader will only profit if the forecast is correct.

Choice "a" is incorrect.  If the trader is correct, buying the shares…

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April 27

By Kaplan Schweser | Posted on April 27, 2017


Answer to Level I Question: B

Answer Explanation: The company is short the futures contract because the company has to make delivery of the physical asset (gold) in the future.  If the price of gold falls below the contract price, the company will benefit because gold production is sold at the higher contract price.  If the price of gold rises, the company will see less of a benefit because it could have sold its gold production at higher prices if the contract did not…

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April 26

By Kaplan Schweser | Posted on April 26, 2017


Answer to Level I Question: A

Answer Explanation: The typical motivation of an investor in selling a stock short is the expectation that the stock price will decline.  The investor can profit from the expected price decline by selling at a higher price now and then covering his or her position by purchasing the stock later at a lower price.

Choice "b" is incorrect.  This would close out a position.  Short selling involves selling a security that is not owned.

Choice "c" is…

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April 25

By Kaplan Schweser | Posted on April 25, 2017


Answer to Level I Question: A

Answer Explanation: Short sellers must post the same margin as buyers and pay any dividends paid by the company whose shares have been shorted.

Choice "b" is incorrect.  Short sellers must pay any dividends paid by the company during the short seller's holding period to the investor who lent the stock to be shorted (sold).

Choice "c" is incorrect.  Short sellers have to borrow, not lend, the shares being shorted.

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April 24

By Kaplan Schweser | Posted on April 24, 2017


Answer to Level I Question: A

Answer Explanation: A dealer will fill a client's order by trading with the client.  If the client wants to sell a position, the dealer buys.  A broker will match buyers and sellers interested in trading the same instrument at the same time and place.  Thus, the firm described above is acting as both a dealer and a broker, (a broker-dealer).

Choice "b" is incorrect.  Custodians hold securities owned by individuals and corporations.  This is done on…

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April 23

By Kaplan Schweser | Posted on April 23, 2017


Answer to Level I Question: A

Answer Explanation: Choice "a" is correct.  Securitizers buy assets, place them in a pool, and then sell ownership interests in the pool.  This accurately describes what the investment bank is doing.

Choices "b" and "c" are incorrect.  Custodians and depository institutions hold securities owned by individuals and corporations.  This client service prevents the loss of securities through fraud, error, or natural disaster.

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April 22

By Kaplan Schweser | Posted on April 22, 2017


Answer to Level I Question: C

Answer Explanation: Singh is connecting buyers and sellers in two different markets while taking advantage of market mispricing to make a riskless profit.  This allows him to purchase the securities at one price on the Bombay Stock Exchange and sell the same securities for a higher price in the U.S.  Effectively, Singh is an intermediary between buyers and sellers from different markets who wish to trade a particular security at the same time.

Choice…

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April 21

By Kaplan Schweser | Posted on April 21, 2017


Answer to Level I Question: B

Answer Explanation: Forward contracts and swaps are similar in two ways.  First, neither requires the posting of an initial investment/funding at initiation.  Secondly, both have counterparty risk because there is no clearinghouse to guarantee payments.

Choice "a" is incorrect.  A cash-settled forward contract requires only one future payment.  In contrast, swaps normally involve multiple payments over the life of the swap.

Choice "c" is incorrect. …

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April 20

By Kaplan Schweser | Posted on April 20, 2017


Answer to Level I Question: B

Answer Explanation: All three selections can be used to add commodity exposure, but the issue is Liu's lack of cash.  The only investment option that involves no initial cash outlay is a forward contract.

Choice "a" is incorrect.  The purchase of a futures contract will require Liu to post an initial margin.  Cash or securities can be applied towards the initial margin, but the securities posted have to also be liquid.  Because Liu's portfolio…

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April 19

By Kaplan Schweser | Posted on April 19, 2017


Answer to Level I Question: C

Answer Explanation: Repurchase agreements (repos) are short-term lending instruments that are classified as fixed-income securities.

Choice "a" is incorrect.  Warrants are issued by corporations.  Warrant holders have the right to buy a security issued by the corporation, with purchases usually occurring at anytime up to the warrants' expiration.  Oftentimes, the security that can be purchased is the issuer's common stock.  Thus, warrants are…

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April 18

By Kaplan Schweser | Posted on April 18, 2017


Answer to Level I Question: A

Answer Explanation: Open-end mutual funds issue and redeem shares on demand at the fund's net asset value (NAV), which is the fund's assets less its liabilities.  Investors deal directly with the fund, and the shares do not trade on an exchange.

Choice "b" is incorrect.  Closed-end funds issue shares in a market offering.  Once issued, the shares trade in the secondary market and the fund itself does not commonly redeem or issue shares.  The shares of…

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April 17

By Kaplan Schweser | Posted on April 17, 2017


Answer to Level I Question: B

Answer Explanation: A $1,000 deposit with a 25 percent reserve ratio would result in $250 dollars being kept in reserve and an available $750 to lend.

Choice "a" is incorrect.  The reserve amount is $250.

Choice "c" is incorrect.  The $250 reserve against the initial deposit is not added to the $1,000 initial deposit to determine the loan amount.

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February 28

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February 27

By Kaplan Schweser | Posted on February 27, 2017 | Read Article


February 26

By Kaplan Schweser | Posted on February 26, 2017 | Read Article


February 25

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February 24

By Kaplan Schweser | Posted on February 24, 2017 | Read Article


February 23

By Kaplan Schweser | Posted on February 23, 2017 | Read Article


February 22

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February 19

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By Kaplan Schweser | Posted on February 15, 2017 | Read Article


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February 10

By Kaplan Schweser | Posted on February 10, 2017 | Read Article


February 9

By Kaplan Schweser | Posted on February 09, 2017 | Read Article


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February 7

By Kaplan Schweser | Posted on February 07, 2017 | Read Article


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By Kaplan Schweser | Posted on February 06, 2017 | Read Article


February 5

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February 4

By Kaplan Schweser | Posted on February 04, 2017 | Read Article


February 3

By Kaplan Schweser | Posted on February 03, 2017 | Read Article


February 2

By Kaplan Schweser | Posted on February 02, 2017 | Read Article


February 1

By Kaplan Schweser | Posted on February 01, 2017 | Read Article


January 31

By Kaplan Schweser | Posted on January 31, 2017 | Read Article


January 30

By Kaplan Schweser | Posted on January 30, 2017 | Read Article


January 29

By Kaplan Schweser | Posted on January 29, 2017 | Read Article


January 28

By Kaplan Schweser | Posted on January 28, 2017 | Read Article


January 27

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January 26

By Kaplan Schweser | Posted on January 26, 2017 | Read Article


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By Kaplan Schweser | Posted on January 25, 2017 | Read Article


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By Kaplan Schweser | Posted on January 23, 2017 | Read Article


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By Kaplan Schweser | Posted on January 22, 2017 | Read Article


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By Kaplan Schweser | Posted on January 20, 2017 | Read Article


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By Kaplan Schweser | Posted on January 19, 2017 | Read Article


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By Kaplan Schweser | Posted on January 18, 2017 | Read Article


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By Kaplan Schweser | Posted on January 17, 2017 | Read Article


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By Kaplan Schweser | Posted on January 16, 2017 | Read Article


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By Kaplan Schweser | Posted on January 15, 2017 | Read Article


January 14

By Kaplan Schweser | Posted on January 14, 2017 | Read Article


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By Kaplan Schweser | Posted on January 13, 2017 | Read Article


January 12

By Kaplan Schweser | Posted on January 12, 2017 | Read Article


January 11

By Kaplan Schweser | Posted on January 11, 2017 | Read Article


January 10

By Kaplan Schweser | Posted on January 10, 2017 | Read Article


January 9

By Kaplan Schweser | Posted on January 09, 2017 | Read Article


January 8

By Kaplan Schweser | Posted on January 08, 2017 | Read Article


January 7

By Kaplan Schweser | Posted on January 07, 2017 | Read Article