Question

Q. A provider of an index fund most likely uses a sampling replication procedure to track the index in order to:

1. reduce transaction costs.

2. select the constituent securities expected to provide the highest returns.

3. produce a portfolio that will include other securities besides those in the index.

Q. Purchase of a hotel property would most likely take place in:

1. brokered markets.

2. order-driven markets.

3. quote-driven markets.

Answer 1

Like the answer or comment if you need any clarifications

A. 1. CORRECT:Reduce Transaction costs as index funds are funds which tracks index prices and they face the only challenge which are expense and tracking error. Sampling Replication procedure is used so that large number of securities in index can be traded with sampling.
2. Incorrect as index ETF has already selected securities with weight
3. Incorrect as Index Fund does not include other securities as its target is to get index returns.


B.1. CORRECT: Broker driven market are best fit when there is illiquidity and each product is different.
2. Incorrect as order driven market has homogenity and buy-sell orders are matched and processed.
3. Incorrect as in quote driven market,only supplier quotes and sell its product.(like over the counter)