• September 2019
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Liquidity

  1. Market liquidity reflects the ability of investors to purchase and sell assets at stable prices. Liquid markets allow investors to buy and sell assets quickly without experiencing a significant alteration in price for those assets. Illiquid markets generally result in a price drop when assets are purchased and sold with speed.
  2. Investment liquidity reflects the ability of a portfolio to be converted to cash with minimal or no loss in overall value.
  3. Accounting liquidity reflects the ability of an individual or organization to convert their current assets in ways that meet their current liabilities.

 

EXAMPLE:

Boy: “I need you to pay me back tomorrow for the cookie I bought you yesterday at lunch.”

Girl: “I’ll have to talk to my mom. My assets aren’t liquid right now.”

Boy: “What?”

Girl: “I’d have to break open my piggy bank to pay you back and my dad says I have to keep the bank intact for a year before I can break it.”

Boy: “Then why is all your money in your piggy bank?”

Girl: “What can I say? I’m a saver, not a spender.”

Boy: “Because you have me around to buy you cookies and stuff…?”

Girl: “Exactly.”