medium · FRM Part 2 Risk & Investment Management
Which of the following describes the 'shadow cost' of an illiquid asset allocation?
- The total dollar fees paid to the fund managers across the full life of the illiquid allocation.
- The gap between the reported book NAV and the discounted price achievable in a forced, distressed sale.
- The added regulatory capital surcharge banks must hold against illiquid, hard-to-value Level-3 asset exposures.
- The rising economic cost of being unable to rebalance or fund consumption as liquidity needs increase.
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