Canadian Accredited Insurance Broker (CAIB) Three Practice Exam

What type of assets are considered liquid for bonding purposes?

1. Real estate investments

2. Redeemable investments

3. Items held for more than 90 days

4. Undeveloped land

The correct answer is: Redeemable investments

For bonding purposes, liquid assets are those that can easily be converted into cash without significant loss of value. Redeemable investments fit this definition because they involve securities or accounts that can be quickly cashed out or sold back at their market value. These types of investments typically include savings accounts, fixed deposits, or mutual funds that can be redeemed relatively quickly, often without incurring fees, making them highly liquid. In contrast, real estate investments, items held for more than 90 days, and undeveloped land do not qualify as liquid assets. Real estate involves a lengthy process for selling and may require significant time and additional costs to convert into cash. Items held for more than 90 days do not inherently indicate liquidity; their convertibility depends on the specific market conditions surrounding those items. Undeveloped land also has lower liquidity due to potential constraints in selling due to market demand, zoning laws, or development issues, often resulting in a longer selling process. Thus, redeemable investments are the most suitable choice for defining liquid assets in the context of bonding.