Herstatt risk and Quick ratio: Difference between pages

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''Continuous linked settlement''
[Current assets ''less'' Stock] ÷ Current liabilities.


Foreign exchange settlement risk caused by delays arising from time-zone differences.
The quick ratio gives a very rough indication of the liquidity (or solvency) of the reporting entity.


Named after Herstatt Bank, which went into compulsory liquidation in 1974, having received funds but not paid out under a number of significant intra-day cross-border transactions.
If the quick ratio were to fall below 1.0, this would indicate that the entity would not be able to meet its current liabilities out of its cash in hand and the proceeds of its other current assets (excluding stock).




For example,


== See also ==
if current assets (excluding stock) are £3m
* [[Continuous linked settlement ]]  (CLS)
 
* [[Foreign exchange settlement risk]]
and current liabilities are £4m,
* [[Payments and payment systems]]
 
the Quick ratio = 3/4


= 0.75.


== '''Other links''' ==


* A comprehensive historical account of the Herstatt crisis by Emmanuel Mourlon-Druol is available here[http://tiny.cc/8ct73x].  
Also known as the Acid test or the Acid test ratio.


''‘Trust is good, control is better': The 1974 Herstatt Bank Crisis and its Implications for International Regulatory Reform, Emmanuel Mourlon-Druol,


''Business History, Vol. 57, Iss. 2, 2015, ISSN 0007-6791 (Print), 1743-7938 (Online).''''
== See also ==
* [[Current ratio]]
* [[Liquidity]]


[[Category:Financial_risk_management]]
[[Category:Liquidity_management]]

Revision as of 14:41, 26 November 2014

[Current assets less Stock] ÷ Current liabilities.

The quick ratio gives a very rough indication of the liquidity (or solvency) of the reporting entity.

If the quick ratio were to fall below 1.0, this would indicate that the entity would not be able to meet its current liabilities out of its cash in hand and the proceeds of its other current assets (excluding stock).


For example,

if current assets (excluding stock) are £3m

and current liabilities are £4m,

the Quick ratio = 3/4

= 0.75.


Also known as the Acid test or the Acid test ratio.


See also

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