1．Which of the following investors is least likely to have liquidity risk concerns? A:

A)   financial institution heavily involved in the repurchase market.

B)   portfolio manager for an emerging-market fund.

C)   trader who invests exclusively in Treasury bonds.

D)   corporate bond investor who intends to hold securities until maturity.

2．Which of the following statements regarding liquidity risk is FALSE?

A)   The bid-ask spread is one measurement of liquidity risk.

B)   Emerging markets typically have more liquidity risk than established markets.

C)   In an illiquid market, the market price may not reflect actual value.

D)   Liquidity risk is not important to an investor who intends to hold a security until maturity.

3．Which of the following statements does NOT describe a characteristic of an illiquid asset or market?

A)   Large block trades that do not materially affect prices.

B)   Wide bid-ask spreads.

C)   Small trading volumes.

D)   Wide variation in prices from transaction to transaction.

4．Which of the following assets is the least liquid?

A)   On-the-run Treasury security.

B)   Foreign exchange futures contract.

C)   Limited Partnership.

D)   A stock traded on the New York Stock Exchange (NYSE).

答案和详解如下：

1．Which of the following investors is least likely to have liquidity risk concerns? A:

A)   financial institution heavily involved in the repurchase market.

B)   portfolio manager for an emerging-market fund.

C)   trader who invests exclusively in Treasury bonds.

D)   corporate bond investor who intends to hold securities until maturity.

The correct answer was C)

Treasury securities are the most liquid of the investments mentioned.

The repurchase market is short term in nature and the collateral is marked-to-market daily. Thus, the need to quickly convert securities to cash (and at approximately market value) is very important. Emerging markets are usually less liquid than established markets, one reason being the small trading volumes. Even if an investor intends to hold the security to maturity, liquidity risk impacts portfolios when marking to market and through changes in investor tastes and preferences over time. For example, liquidity is important to institutional investors that must determine market values for net asset values (NAVs).

2．Which of the following statements regarding liquidity risk is FALSE?

A)   The bid-ask spread is one measurement of liquidity risk.

B)   Emerging markets typically have more liquidity risk than established markets.

C)   In an illiquid market, the market price may not reflect actual value.

D)   Liquidity risk is not important to an investor who intends to hold a security until maturity.

The correct answer was D)

Even if an investor intends to hold securities to maturity, liquidity risk impacts portfolios when marking to market and through changes in investor tastes and preferences over time. For example, liquidity is important to institutional investors that must determine market values for net asset values (NAVs) and to dealers in the repurchase market for collateral valuation.

A narrow bid-ask spread indicates a liquid asset, while a wide bid-ask spread indicates an illiquid asset. For example, the spreads on recently issued Treasury securities are often only a few basis points. Emerging markets are usually less liquid than established markets, one reason being the small trading volumes. When a market is illiquid, even if there is a market price listed, there may not be a buyer at the time that the investor wants to sell.

3．Which of the following statements does NOT describe a characteristic of an illiquid asset or market?

A)   Large block trades that do not materially affect prices.

B)   Wide bid-ask spreads.

C)   Small trading volumes.

D)   Wide variation in prices from transaction to transaction.

The correct answer was A)

In a liquid market with large trading volumes, large block trades should not affect prices. All other choices are characteristics of illiquid markets or assets.

4．Which of the following assets is the least liquid?

A)   On-the-run Treasury security.

B)   Foreign exchange futures contract.

C)   Limited Partnership.

D)   A stock traded on the New York Stock Exchange (NYSE).

The correct answer was C)

All other choices are considered highly liquid assets. On-the-run Treasuries are recently issued and are often more liquid than older issues.