Liquidity

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1. Assets.

An asset's ability to be turned into cash quickly and without significant loss compared with current market value.

Cash itself is the most liquid of assets.

After that, the next most liquid asset is often high quality central government debt, for example gilts.


2. Markets.

In relation to a market, the extent to which large quantities of the asset traded in the market can be bought or sold at any time, with low transaction costs, and without affecting the market price.


3. Short-term financial health.

An entity’s ability to pay its obligations when they fall due, especially in the short term.


4. Medium-term financial health.

An entity's ability to source additional funds to meet its obligations, including in the medium and longer term.


5. Financial measures.

A financial measure designed to quantify an entity's ability to meet its obligations when they fall due.

  • For non-financial organisations, simple measures of liquidity include the current ratio and the quick ratio.
  • For banks and other financial institutions, liquidity measures include those which identify how long the bank could survive if wholesale funds were to dry up and retail funding was heavily stressed. This period is known as the survival period.


See also


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