Question

Exchange Traded Funds ETFs

1. Define the following terms: a. spiders b. mutual fund c. net asset value d. counterparty risk 2. What is meant by financial innovation? Identify and explain the main forces that motivate the search for financial innovations. 3. What are exchange-traded funds (EFTs)? a. What was the first ETF? b. What was the first example of an ETF innovated in the United States? 4. How does a closed-end mutual fund differ from an open-end fund? a. What advantages and disadvantages does each type of mutual fund have? b. What advantages of ETFs relative to both types of mutual funds explain ETFs rapid growth? c. How does Amaral use the data on corporate bond spreads to distinguish alternative explanations for the sharp credit downturn? What does he conclude? Why?

Answer 1

3. ETFs stand for Exchangeable traded funds.ETF are marketable securities which are indexed to shares, commodity, bonds,etc. These are traded in the stock exchange and are different to mutual funds.

a) The first ETF was issued in Canada by Toronto Stock Exchange called TIPs 35 in 1990

b) In 1993 US S&P 500 Trust ETF was launched called spider(SPDR).It is still traded actively.

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