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FRM Part II · FRM Exam Part II · Global Financial Stability Report, April 2025, Chapter 2 (Geopolitical Risk)

A portfolio manager wants to understand which investor type amplifies the effect of geopolitical shocks on emerging market asset prices. According to the general findings of the GFSR April 2025 on investor behavior, which is the most plausible vulnerability?

Open-ended investment funds that promise frequent redemptions while holding less liquid emerging market assets are the main amplifier, since investor withdrawals can force asset sales during geopolitical stress, magnifying price declines and outflows, unlike stable long-horizon holders.

  1. ALong-horizon sovereign wealth funds with no redemption features
  2. BOpen-ended funds with daily redemption holding less liquid emerging market assets, which may sell quickly under stressCorrect
  3. CCentral banks holding assets to maturity
  4. DBuy-and-hold insurers matching long liabilities

Explanation

Open-ended funds offering liquidity transformation face redemption pressure and may be forced sellers when risk rises, amplifying price moves. Long-horizon holders with stable funding tend to absorb rather than amplify shocks.

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