M07 – Digital Assets: CFAI Practice Problems

Source: CFAI CFA1 Alternative Investments Practice 2026 Back to module: m07-digital-assets


Question 1

The mechanism by which participants in a blockchain network agree on the validity of transactions and the current state of the distributed ledger is best described as:

  • A. Cryptographic hashing
  • B. Consensus protocol
  • C. Smart contract execution

Question 2

A blockchain’s structure in which each block contains a cryptographic hash of the previous block, creating an immutable chain, is best described as:

  • A. A distributed database
  • B. A consensus mechanism
  • C. A set of rules for cryptographic linking of blocks

Question 3

A key advantage of blockchain technology for financial transactions is that it enables:

  • A. Guaranteed price stability of digital assets
  • B. Complete anonymity for all participants
  • C. Time-efficient transactions without the need for a central intermediary

Question 4

Cryptocurrencies differ from traditional financial assets in that cryptocurrencies are most likely:

  • A. Backed by physical assets
  • B. Not valued based on expected cash flows
  • C. Regulated by central banking authorities

Question 5

A digital asset that maintains a stable value relative to a reference asset (such as a fiat currency like the US dollar) through various mechanisms is best described as a:

  • A. Utility token
  • B. Stablecoin
  • C. Governance token

Question 6

An investor who gains exposure to cryptocurrency markets through regulated exchange-traded futures contracts is most likely using:

  • A. Indirect investment in digital assets
  • B. Direct investment in digital assets
  • C. Decentralized finance (DeFi) strategy

Question 7

The decentralized nature of most cryptocurrency networks makes them:

  • A. Easier for governments to regulate than traditional financial markets
  • B. Harder for governments to regulate than traditional financial markets
  • C. Equally easy to regulate as traditional financial markets

Question 8

Including digital assets such as cryptocurrencies in a diversified investment portfolio:

  • A. Always reduces portfolio risk
  • B. May provide diversification benefits due to low correlations with traditional assets
  • C. Eliminates the need for traditional asset allocation

Question 9

Digital assets as an asset class are best characterized by:

  • A. Low returns, low risk, and high correlations with equities
  • B. High returns, high risk, and low correlations with traditional assets
  • C. Moderate returns, moderate risk, and stable correlations