Answer: The share of liquid assets in institutional portfolios has generally gone up in the past 2 decades.

The correct answer is C. The share of liquid assets in institutional portfolios has generally gone up in the past 2 decades. This is because both pensions and endowments have increased their holdings of alternative assets from about 5% to 20-25%. This shift towards alternative assets reflects a trend among institutional investors to diversify their portfolios and seek higher returns, which can be found in less liquid markets. Option A is incorrect because municipal bonds have less than 10% turnover, which is much lower than the approximately 35% turnover for OTC equities. This indicates that municipal bonds are less liquid than OTC equities. Option B is incorrect because the statement that the traditional public, liquid markets of stocks and bonds are larger than the total wealth held in liquid assets is not accurate. In fact, US real estate markets are large compared to the size of US stocks and bonds, suggesting that there is significant wealth held in illiquid assets. Option D is incorrect because liquidity dried up in both the repo markets and commercial paper markets during the 2008-2009 Financial Crisis, contrary to the claim that liquidity was only affected in the repo markets. This highlights the interconnectedness of financial markets and the potential for liquidity to evaporate in various segments during times of crisis.

Author: LeetQuiz Editorial Team