D.35 Alternative investments and liquidity risk Flashcards
Learners will be able to identify and explain the characteristics and liquidity risks associated with alternative investments, including real estate, commodities, hedge funds, private equity, cryptocurrencies, and tangible assets.
A client invested in a private equity fund that has a 10-year lock-up period. After five years, the client wants to withdraw funds due to unexpected expenses. What is the liquidity risk associated with this investment?
A. Liquidity risk is low because the investment has a defined lock-up period.
B. Liquidity risk is high because the client may not be able to withdraw funds before the lock-up period ends.
C. Liquidity risk is moderate because the client can sell the investment to another investor.
D. Liquidity risk is negligible because the private equity fund is considered a low-risk investment.
B. Liquidity risk is high because the client may not be able to withdraw funds before the lock-up period ends.
D.35 Alternative investments and liquidity risk
What is the primary liquidity risk associated with investments in private equity funds?
A. Counterparty risk
B. Market risk
C. Funding risk
D. Lock-up risk
D. Lock-up risk
D.35 Alternative investments and liquidity risk
Which of the following alternative investments is most likely to be impacted by a sudden change in interest rates?
A. Hedge funds
B. Real estate investment trusts (REITs)
C. Private equity funds
D. Commodities
B. Real estate investment trusts (REITs)
D.35 Alternative investments and liquidity risk
Which of the following alternative investments provides the greatest diversification benefits to a portfolio of traditional assets?
A. Private equity funds
B. Commodities
C. Hedge funds
D. Real estate investment trusts (REITs)
B. Commodities
D.35 Alternative investments and liquidity risk
Which of the following is a potential downside of investing in hedge funds?
A. Limited liquidity
B. High management fees
C. Low potential returns
D. Low risk
B. High management fees
D.35 Alternative investments and liquidity risk
John is an individual investor looking to diversify his portfolio with alternative investments. He is interested in investing in a hedge fund. Which of the following risks is most closely associated with hedge funds?
A. Market risk
B. Credit risk
C. Interest rate risk
D. Liquidity risk
D. Liquidity risk
D.35 Alternative investments and liquidity risk
ABC Company is considering investing in a private equity fund that invests in start-ups. Which of the following risks is most likely to be associated with this investment?
A. Interest rate risk
B. Market risk
C. Credit risk
D. Liquidity risk
B. Market risk
D.35 Alternative investments and liquidity risk
Sarah is an institutional investor considering investing in a real estate fund that invests in commercial properties. Which of the following risks is most likely to be associated with this investment?
A. Interest rate risk
B. Credit risk
C. Market risk
D. Liquidity risk
D. Liquidity risk
D.35 Alternative investments and liquidity risk
Tom is an individual investor looking to invest in a fund that specializes in investing in art. Which of the following risks is most likely to be associated with this investment?
A. Credit risk
B. Interest rate risk
C. Market risk
D. Liquidity risk
C. Market risk
D.35 Alternative investments and liquidity risk
A client is considering investing in a private equity fund that has a 10-year lock-up period. What is the primary liquidity risk associated with this investment?
A. The fund’s performance may not meet expectations.
B. The client may need access to their capital before the lock-up period expires.
C. The fund may not be able to meet redemption requests in a timely manner.
D. The fund may charge high fees that erode returns.
B. The clien may need access to their capital before the lock-up period expires
D.35 Alternative investments and liquidity risk
A client is interested in investing in a private equity fund. What is a significant liquidity risk associated with this type of investment?
A. The private equity fund’s investments may be illiquid
B. The private equity fund may have a high expense ratio
C. The private equity fund may have a low return
D. The private equity fund’s investments may be too risky
A. The private equity fund’s investments may be illiquid
D.35 Alternative investments and liquidity risk
A client is considering investing in a real estate investment trust (REIT). What is a significant liquidity risk associated with this type of investment?
A. The REIT’s investments may be illiquid.
B. The REIT may have a high expense ratio.
C. The REIT may have a low return.
D. The REIT’s investments may be too risky.
A. The REIT’s investments may be illiquid.
D.35 Alternative investments and liquidity risk
What type of liquidity risk is associated with private equity investments?
A. Market liquidity risk
B. Funding liquidity risk
C. Asset liquidity risk
D. Reinvestment liquidity risk
C. Asset liquidity risk
D.35 Alternative investments and liquidity risk
Which of the following alternative investments has the lowest liquidity risk?
A. Hedge funds
B. Private equity
C. Real estate
D. Commodities
D. Commodities
D.35 Alternative investments and liquidity risk
A hedge fund manager uses leverage to increase returns. What type of liquidity risk is the manager exposed to?
A. Funding liquidity risk
B. Market liquidity risk
C. Asset liquidity risk
D. Systemic liquidity risk
A. Funding liquidity risk
D.35 Alternative investments and liquidity risk
