is anyone else confused on what constitutes liquidity? i have noticed inconsistencies in schweser and cfa. schweser mentions covering an income shortfall as liquidity while cfa doesn’t seem to. anyone know which method is correct?
I am totally confused on Liquidity.
Stick to CFAI. Liquidity basically what is needed in short-term (within one year). If retired, you can write that mr XYZ will need XXX amount in cash (annual spending) for next year’s expenses. IPS may also say that mr. XYZ would like to keep 6 months of expenses in cash or risk free assets.
i looked at the 2009 cfa solution for the individual ips and they seem to list everything down (mortgage payment, income shortfall etc). i would guess best thing is to list everything down?
that makes sense. will stick to that. thanks
When it comes to liquidity, i am writing 3 things every time: 1) Ongoing living expenses for the year 2) Negative liquidity events in the future (new house, college, etc) 3) Emergency cash reserve. No matter what the question, my answer will address each of these 3 items.
i wouldn’t put living expenses if its covered by current salary. only if its not covered by salary should you mention it.
afjunkie… 100% correct, I will only include any living expenses not covered by salary. Sorry for the oversight…
no prob, i really hope they don’t dock us for putting extra points that are not needed. oh well, there are bigger things on the exam to worry about 
CFAdreams Wrote: ------------------------------------------------------- > When it comes to liquidity, i am writing 3 things > every time: > > 1) Ongoing living expenses for the year > 2) Negative liquidity events in the future (new > house, college, etc) > 3) Emergency cash reserve. > > No matter what the question, my answer will > address each of these 3 items. Good stuff, and I’m gonna mimic you on this strategy (taking into account what AFJunkie said afterwards, obviously). Like you guys, liquidity is the one constraint that I don’t feel 100% comfortable on, but CFAdreams’ template is a solid start. Sooooooooooooo, what are you guys putting for institutional liquidity? Anyone have a similar template/checklist they’d like to share?
Liquidity event is also when current assets won’t meet the current needs. So for example, if an endowment needs $100k for a school building and the donations coming in is only $50k, the liquidity need is $50k.
for institutional its basically the same. but i believe you are supposed to calculate an actual value if you are able to. If you look at the 2009 exam, for liquidity they asked you to perform and actual calculation, not just state simply 5%.
Also for Inst’l – put the mgt fee amount as well as plan/foundation overhead if provided.