Certified Government Financial Manager (CGFM) Practice Exam

The selection of low liquidity with high risk as a key characteristic of alternative investments accurately reflects the nature of such assets. Alternative investments often include hedge funds, private equity, real estate, commodities, and collectibles, which typically do not trade on public exchanges. This limitation in trading leads to lower liquidity, meaning that it can be more difficult to buy or sell these investments quickly without potentially impacting their market value.

Additionally, alternative investments often carry higher risk due to the complexity of the investment strategies employed, lack of regulation, and the potential for significant price volatility. Investors in alternative assets might be seeking higher returns, but this typically comes with the understanding that they are also taking on increased risk and facing challenges in accessing their capital when needed.

This understanding of alternative investments contrasts with other options, such as the idea of guaranteed returns over short durations or the characteristics of high returns paired with low risk, which are generally not true for investments in this category. Most investors recognize that achieving high returns tends to involve a commensurate level of risk.