FRM 2008 Practice PIII question 32 - liquidation costs

[fullofquestions]

Which of the following is not a determinant of asset liquidation costs?
a. The liquidation time horizon
b. Asset fungibility
c. Asset type
d. Asset size
Answer: d
Explanation: There is not necessarily any economic link between asset size and liquidation cost.


How could asset size not affect liquidation costs? If this is not a good question let me know and we can avoid answering a mediocre question.

 

[David Harper CFA FRM]

FoQ - It's based on last year's (2008) liquidity reading which only concerned the determinants of exogenous liquidity cost (i.e., impacting bid-ask spread) ... now that Dowd is assigned, this would be a bad question b/c we look also at "endogenous" liquidity adjustment which indeed is a function of position size relative to market, so you are right ... relative position size is the key variable in "endogenous" liquidity risk (the risk that the trade itself will depress prices) - David