Canadian Securities Course (CSC) Level 2 Practice Exam

The responsibility for maintaining cash and short-term liquidity in a mutual fund primarily lies with the fund manager. The fund manager makes investment decisions, which include determining the amount of cash and liquid assets the fund should hold to meet redemption requests and other short-term obligations.

Fund managers assess the fund's liquidity needs based on inflows and outflows, expected investor behavior, and the overall investment strategy. They ensure that a sufficient portion of the fund's assets is allocated to liquid investments, enabling the fund to navigate market conditions effectively and meet the needs of its investors without having to sell less liquid securities at an inopportune time.

While directors or trustees may oversee fund operations and policies, they do not manage day-to-day liquidity. The custodian is responsible for safeguarding the fund’s assets and ensuring accurate record-keeping, and distributors focus on selling the fund and managing client relationships but do not handle fund liquidity management. Therefore, it is clear that the fund manager plays the crucial role in maintaining a mutual fund's cash and short-term liquidity.