Which of the following best explains liquidity? (2024)

Which of the following best explains liquidity?

Answer and Explanation:

How do you explain liquidity?

Liquidity is the degree to which a security can be quickly purchased or sold in the market at a price reflecting its current value. Liquidity in finance refers to the ease with which a security or an asset can be converted into cashat market price.

Which best describes liquidity?

Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price. Cash is the most liquid of assets, while tangible items are less liquid.

Which of the following best defines the term liquidity?

Definition: Liquidity means how quickly you can get your hands on your cash. In simpler terms, liquidity is to get your money whenever you need it.

Which of the following is a liquidity?

The correct answer is Current ratio. It measures a company's ability to pay short-term obligations or those due within one year. It indicates the financial health of a company and how it can maximize the liquidity of its current assets to settle debt and payables.

What is liquidity quizlet?

What is liquidity? How quickly and easily an asset can be converted into cash.

What is an example of a liquidity decision?

Liquidity decision:

If a firm does not have adequate working capital, it may become illiquid and consequently fail to meet its current obligations thus inviting the risk of bankruptcy. On the contrary, if the current assets are too enormous, the profitability is adversely affected.

Which statement is true about liquidity?

AI-generated answer

An asset is considered liquid if it can be turned into cash quickly regardless of the value received. This statement is generally true.

What defines the liquidity of an asset _____________?

The liquidity of an asset is defined as the: risk that if you need to sell the asset quickly, you may not be able to get a good price for it. ability to quickly and easily convert the asset to cash, with little or no loss in value.

What two things does liquidity measure?

Liquidity ratios measure a company's ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio, quick ratio, and operating cash flow ratio.

Which of the following best defines liquidity quizlet?

Which of the following best defines liquidity? It is the ease with which an asset is converted to the medium of exchange.

What are the characteristics of liquidity?

Liquid markets tend to exhibit five characteristics: (i) tightness; (ii) immediacy; (iii) depth; (iv) breadth; and (v) resiliency. Tightness refers to low transaction costs, such as the difference between buy and sell prices, like the bid-ask spreads in quote-driven markets, as well as implicit costs.

Why is liquidity important?

A company's liquidity indicates its ability to pay debt obligations, or current liabilities, without having to raise external capital or take out loans. High liquidity means that a company can easily meet its short-term debts while low liquidity implies the opposite and that a company could imminently face bankruptcy.

What are examples of the three types of liquidity?

The three main types are central bank liquidity, market liquidity and funding liquidity.

Which of the following is an example of liquidity ratios?

The three main liquidity ratios are the current ratio, quick ratio, and cash ratio. When analyzing a company, investors and creditors want to see a company with liquidity ratios above 1.0. A company with healthy liquidity ratios is more likely to be approved for credit.

What type of risk is liquidity?

Liquidity risk refers to how a bank's inability to meet its obligations (whether real or perceived) threatens its financial position or existence. Institutions manage their liquidity risk through effective asset liability management (ALM).

What is the definition of liquidity brainly?

Final answer:

Liquidity refers to how easily an investment can be exchanged for cash. Highly liquid investments can be quickly converted into cash without significant costs or losses.

What is the purpose of liquidity quizlet?

Liquidity (Links to an external site.) is the ability to convert assets into cash quickly and cheaply. The purpose of liquidity ratios is to determine a company's ability to pay off current debt obligations by raising external capital.

What is a liquidity event example?

Liquidity events allow venture investors to convert their ownership stakes in a startup into cash or liquid securities. Liquidity events can include a startup going public, getting acquired, or a venture investor selling their stake on a secondary market.

How to find liquidity?

What is an example of a liquidity problem?

Liquidity Risk Example

If an investor sells a bond and uses the acquired funds in a way that makes them illiquid by the time they have to pay off the bond, this renders them at a liquidity risk. That bond thus severely declines in value, as there are also no buyers that are willing and liquid enough to buy it.

Which statement is true about liquidity quizlet?

Which statement is true about liquidity? The more liquid an investment, the less the return.

What is liquidity a measure of quizlet?

Liquidity is a measure of an asset's ability to be quickly converted to cash without risk of loss.

Which of the following is a measure of liquidity quizlet?

Quick ratio also referred to as acid-test ratio, measures the company's ability to pay current maturing obligations using its most liquid assets.

What is a good liquidity ratio?

In short, a “good” liquidity ratio is anything higher than 1. Having said that, a liquidity ratio of 1 is unlikely to prove that your business is worthy of investment. Generally speaking, creditors and investors will look for an accounting liquidity ratio of around 2 or 3.