Hedge funds earn a fixed fee plus a percentage of the profit

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1. Hedge funds earn a fixed fee plus a percentage of the profits, if any, that they generate (see Business Snapshot 1.2). How is a fund manager motivated to behave with this type of arrangement?

2. Assume that the price of currency A expressed in terms of the price of currency B follows the process where r_A is the risk-free interest rate in currency A and r_B is the risk-free interest rate in currency B. What is the process followed by the price of currency B expressed in terms of currency A?

Reference no: EM131237687

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