The last sentence on page 339 and the first sentence on page 340, curriculum vol 2 says the private exchange fund“ will create the opportunity to borrow against the stock at more advantageous terms than would be the case if it were not hedged, and without creating the additional risks associated with leverage ”. Sounds like leverage is NOT used, which is also confirmed by the answer to Q2 in morning session of 2007 exam.
But in the second paragraph on page 340, it says that “the partners in a private exchange fund have the ability to choose, and vary over time, the investment bought with the proceeds of the borrowing”. Is the “choose investment” meant by making investment beyond the portfolio(eg., an investor make a personal investments by himself) rather than in the portfolio?
In other words, is there any difference between leverage and borrowing against the securities in the portfolio? Tks