Question #2
Reading: Reading 35 Exchange-Traded Funds - Mechanics and Applications
PDF File: Reading 35 Exchange-Traded Funds - Mechanics and Applications.pdf
Page: 1
Status: Correct
Correct Answer: B
Question
Which of the following is least likely a purpose of the in-kind creation/redemption of an ETF?
Answer Choices:
A. Narrowing the arbitrage gap
B. Tax efficiency
C. Lower cost
Explanation
The in-kind creation/redemption process serves three purposes: lower cost, tax efficiency
and keeping market prices in line with NAV. Arbitrage gap is the band around NAV at
which the ETF should trade at and is not affected by the in-kind creation/redemption
process.