SIE Understanding Products and Their Risks Question 82: Answer and Explanation

Question: 82

Which of the following statements is true regarding "offshore" and "onshore" hedge funds?

• A. A hedge fund may not set up both an "offshore" and an "onshore" fund.
• B. An "offshore" fund is generally set up as a Limited Liability Corporation (LLCs) or a limited partnership.
• C. An "onshore" fund is usually established as a corporation with Articles of Incorporation in the United States.
• D. U.S. investors in hedge funds pay U.S. taxes on earnings from hedge funds.

Correct Answer: D

Explanation:

D: Choice D is correct because all income earned by a U.S. person is subject to the Internal Revenue code. Choice A is incorrect because a hedge fund may set up both an "offshore" fund for non-U.S. investors and an "onshore" fund for U.S. investors. Choice B is incorrect because an "offshore" hedge fund is typically set up as a corporation. Choice C is incorrect because an "onshore" hedge fund is generally established as a Limited Liability Corporation (LLC) or a limited partnership.