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Liquidity is the ultimate distillation of all activities in a financial institution. Everything that a MFI does eventually leads to a cash inflow or outflow and impacts its liquidity position. MFIs have to be concerned about the liquidity implications of the core bank business of repackaging customer deposits into loans and investments.
Aug 9, 2024 · In this article, we will explore the concept of liquid assets, provide a step-by-step guide on how to determine and compute them, and offer a diverse range of 25+ examples to help you assess your financial liquidity effectively.
- Cash. Includes physical money (local and foreign currency) as well as the savings account and/or current account balances.
- Cash equivalents. Cash equivalents are investment securities with a maturity period not exceeding a year. Examples include treasury bills, treasury bonds, certificates of deposit, and money market funds.
- Marketable securities. Stocks, bonds, and exchange traded funds (ETFs) are examples of marketable securities with a high degree of liquidity. They can be sold easily and it usually takes just a few days to receive the cash from their sale.
- Accounts receivable. Money owed to a business by its customers for goods and services provided makes up accounts receivable. The liquidity of accounts receivable varies.
How? • How do liquidity requirements, capital requirements, and bank resolution rules interact? • How have bank liquidity levels changed in recent years? What is liquidity at a bank?...
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- Liquid Assets
- Fixed Assets
- Liquidity in An Economic Downturn
If a debt suddenly becomes due, the simplest way to meet that obligation is with cash. Physical currency is the only truly liquid asset, since it represents capital in its most accessible form. Because funds deposited in checking or savings accounts can generally be accessed almost immediately, they are also considered a liquid asset. Stocks and bo...
The things a business owns that contribute to its profitability but are not easily converted into currency are called fixed assets. Common examples of fixed assets include real estate, vehicles and equipment. If a shipping business needs to pay off a creditor on a short deadline, selling its fleet of delivery vans or pieces of large packaging equip...
In the event of a decrease in revenue or an economic downturn, a company that is highly illiquidwould have to deal with selling off, or liquidating, fixed assets to meet its financial obligations. This could mean selling property or equipment that is essential to the day-to-day operations of the business, limiting its ability to generate revenue do...
- Claire Boyte-White
Why are liquid assets important for businesses? Liquid assets are vital for businesses because they ensure a company can meet its short-term financial obligations, such as paying bills, suppliers, and salaries.
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Oct 28, 2024 · Liquid assets provide you with cash when your business needs it. This cash could cover operational costs such as supplier invoices, employee wages, insurance payments, and ongoing bills. More importantly, liquid assets are invaluable in providing a safety buffer.
