- CFA Exams
- CFA Level I Exam
- Study Session 17. Alternative Investments
- Reading 50. Introduction to Alternative Investments
- Subject 6. Risk management overview
CFA Practice Question
Investments with low liquidity include:
II. coins and stamps.
III. precious metals.
I. antiques and art.
II. coins and stamps.
III. precious metals.
Correct Answer: I, II and III
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 3
User | Comment |
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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. |
ascruggs92 | I remember this question from another section. Based on the answers, I think we are to assume precious metals refers to holding the physical object as opposed to buying ETFs and derivatives. Definitely a gray area, but oh well. |