CFA Practice Question

There are 139 practice questions for this study session.

CFA Practice Question

Investments with low liquidity include:

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
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.
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