Managing a Fund for Institutional Clients with High Liquidity Needs and Short Time Horizon | CFA Level 1 Exam Prep

Best Institutional Investor Choice for Managing Fund with High Liquidity Needs and Short Time Horizon

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Question

Dhana Urbanek is a new CFA Charterholder and is considering multiple job offers. She is most interested in managing a fund for an institutional client with high liquidity needs and a short time horizon that also must manage tax consequences. Which of the following institutional investors is she most likely to select?

Answers

Explanations

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A. B. C. D.

Explanation

Urbanek is most likely to select the bank because it meets all her criteria. Banks have high liquidity needs and short time horizons due to the need to maintain a positive spread and the need to payout deposits and fund loans. In addition, banks are subject to taxation at the state and Federal levels. Endowment funds and pension funds do not meet any of her criteria "" they generally have low liquidity needs, long time-horizons, and are usually tax-exempt. The liquidity needs and time horizons of life insurance companies depend on the specific products offered. However, they generally have lower liquidity needs and longer time horizons than banks, and usually only a portion of income is taxable.

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