IFIC Mutual Funds Licensing Practice Exam · Question
Which of the following statements most accurately describes the trading mechanism of an Exchange Traded Fund (ETF)?
Unlike traditional mutual funds, ETFs trade on stock exchanges, meaning their prices fluctuate throughout the day based on market supply and demand, and can tra
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Question: Which of the following statements most accurately describes the trading mechanism of an Exchange Traded Fund (ETF)?
Answer options:
- ETFs are bought and sold directly from the fund company at their Net Asset Value (NAV) at the end of the trading day. ✅ ETFs trade on stock exchanges throughout the day at prices influenced by supply and demand, which may differ from their NAV.
- ETFs always trade at a premium to their NAV due to their popularity among investors.
- ETFs can only be purchased in large blocks by institutional investors directly from the fund manager.
Correct answer: ETFs trade on stock exchanges throughout the day at prices influenced by supply and demand, which may differ from their NAV.
Explanation: Unlike traditional mutual funds, ETFs trade on stock exchanges, meaning their prices fluctuate throughout the day based on market supply and demand, and can trade at a premium or discount to their NAV.
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