Question

Which of the following statements is CORRECT?

Answer 1

The correct answer is E) Hedge funds are not as highly regulated as most other types of financial institutions. The justification for this light regulation is that only "sophisticated investors" (i.e., those with high net worths and high incomes) are permitted to invest in these funds, and these investors supposedly can do any necessary "due diligence" on their own rather than have it done by the SEC or some other regulator.

That is the correct statement.

In financial terms, a hedge fund is a structure of pooled investments of a limited liability company or limited partnership. The manager that operates the hedge fund raises money from other investors and put the money to work in some strategy it considers to be the most profitable. Wealthy people hire specialized managers to manage the fund in order to maximize profits.