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Basic Question 8 of 20
The causes of changes in liquidity risk are as a result of ______.
B. the inability of dealers to make a market when a new structure is in its infancy
C. the changes that occur in bid-ask spreads when the market expands or contracts
D. unappealing bond structures which cause illiquid markets
A. the new complex bond structures that arise from time to time
B. the inability of dealers to make a market when a new structure is in its infancy
C. the changes that occur in bid-ask spreads when the market expands or contracts
D. unappealing bond structures which cause illiquid markets
User Contributed Comments 2
| User | Comment |
|---|---|
| tagr | Market expands => more liquidity => more competition among market participants => tighter bid-ask spreads |
| octavianus | B is not true. The question refers to CHANGES in liquidity risk, and if do not make a market when a new structure is in its infancy, there is no CHANGE in liquidity for the security because liquidity does not exist at that point in time |
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Learning Outcome Statements
describe credit risk and its components, probability of default and loss given default
CFA® 2024 Level I Curriculum, Volume 4, Module 14.