Canadian Securities Course (CSC) Level 2 Practice Exam

What is a common secondary investment objective in the portfolio management process?

1. Asset class timing

2. Liquidity

3. Legal compliance

4. Performance evaluation

The correct answer is: Liquidity

Liquidity is often considered a common secondary investment objective in the portfolio management process because it refers to the ease with which an investment can be sold or converted into cash without significantly affecting its price. Maintaining liquidity is crucial for investors as it allows them to access funds when needed, respond to market opportunities, or manage unforeseen financial obligations. While a portfolio can be designed primarily for capital growth or income generation, liquidity ensures that the investor can meet short-term needs without having to sell off long-term investments at an inopportune time. This balance between investment objectives is essential for effective portfolio management, helping to support both primary goals and the overall stability of the investment strategy. The other options reflect different aspects of investment management but do not typically classify as secondary objectives in the same way that liquidity does. For example, asset class timing focuses on strategic investment decisions rather than liquidity; legal compliance is crucial but more a necessity than a goal; and performance evaluation is typically a measure of success rather than an objective itself.