- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Investments
- Learning Module 36. Market Organization and Structure
- Subject 2. Assets and Contracts
CFA Practice Question
Investments with low liquidity include all of the following except ______.
B. coins and stamps
C. precious metals
D. All of the above
A. antiques and art
B. coins and stamps
C. precious metals
D. All of the above
Correct Answer: D
A low level of liquidity is virtually guaranteed when there is uniqueness to assets. Financial assets are not unique; for example, one share of IBM is exactly identical to every other share. On the other hand, real assets have variation due to handling and storage conditions. Precious metals are generally more liquid than the others, but they are commonly traded as jewelry, which has uniqueness value. Shipping and insurance also affect the value. For example, a store of gold bars in New York will be worth more to an investor in New York than in San Francisco because of the difference in transportation costs.
User Contributed Comments 9
| User | Comment |
|---|---|
| achu | Remember, precious metals ALSO considered "low liquidity." |
| Kashi2010 | It depends entirely on how you define 'precious metals' of course, but the Gold & silver ETFs are amongst the most traded & most liquid on the market today, and derivative contracts (futures/options) are also incredibly liquid. The only form of investment in precious metals that is not liquid would be physicla holdings (i.e. gold/silver bars), but since the vast majority of investors invest in the physical asset via an ETF proxy, this question appears misleading. |
| michlam14 | totally agree on the precious metals, in fact I'm pretty sure financial news talks specifically about the prices of "precious metals" in reference to futures etc. they didnt have an issue mentioning stamps here, I think they should have just directly used the term gold bars. |
| johntan1979 | My brain must be screwing me when I thought that coins and stamps are those everyday pennies, quarters and USPS stamps :p |
| schweitzdm | The wording of this problem is very odd. |
| ascruggs92 | Yeah this question needs to be changed. Maybe gold bars are considered low liquidity but precious metals are traded very frequently through proxies on public exchanges |
| lordcomas | They mention precious metals not contracts nor instruments for precious metals. so,, think on how difficult is to move silver containers from another country to yours. |
| khalifa92 | precious metals are illiquid because they are unique and differ from each other like all other real assets. |
| walterli | low liquidity = heavy to carry |