CFA Level I · CFA Level I Exam · Basics of Portfolio Planning and Construction
An investment policy statement for a foundation says it must keep enough assets in cash and short-term securities to meet a large, scheduled grant payment in 18 months. This requirement is best described as a:
It is a liquidity constraint. The foundation must hold enough cash and short-term securities to fund a known grant payment in 18 months without selling assets at a loss. A time horizon describes the investment period and a legal constraint stems from external rules, neither of which is described.
- Aliquidity constraintCorrect
- Btime horizon constraint
- Clegal and regulatory constraint
Explanation
A liquidity constraint is the need to raise cash for known or expected spending without a material loss in value. The scheduled grant payment creates this need. The time horizon relates to the length of the investment period, not to a specific cash need, and nothing here refers to a law or regulation.
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