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Learning Objectives. At the end of this lesson you should: be able to distinguish between strategic, operational and short-term tactical planning. understand how liquidity planning is connected to all levels of the planning process. understand the distinction between the source of liquidity requirements and active liquidity management.
Basic course. Lesson 1: Introduction to Liquidity Management. Learning Objectives. When you have studied this lesson you should: • be able to define liquidity, cash assets and liquid assets. • understand the basic objectives of liquidity management. • have a sense of some practical liquidity issues facing microfinance institutions.
Learning Objectives. At the end of this lesson you should: be able to define and compute the most common liquidity ratios. understand the advantages and limitations of liquidity measurement based on ratios. have a sense of the typical value range of certain liquidity ratios in a micro-finance institution. be able to identify a set of liquidity ...
Liquidity and Asset-liability Management. Asset-liability management (ALM) is the process of planning, organizing, and controlling asset and liability volumes, maturities, rates, and yields in order to minimize interest rate risk and maintain an acceptable prof-itability level. Simply stated, ALM is another form of planning.
- Overview
- Liquidity Management in Business
- Liquidity Management in Investing
Liquidity management takes one of two forms based on the definition of
One type of liquidity refers to the ability to trade an asset, such as a stock or bond, at its
The other definition of liquidity applies to large organizations, such as financial institutions. Banks are often evaluated on their liquidity, or their ability to meet cash and
obligations without incurring substantial losses. In either case, liquidity management describes the effort of investors or managers to reduce liquidity risk exposure.
Investors, lenders, and managers all look to a company's
using liquidity measurement ratios to evaluate liquidity risk. This is usually done by comparing
to create cash flow—and short-term liabilities. The comparison allows you to determine if the company can make excess investments, pay out bonuses or meet their debt obligations. Companies that are over-leveraged must take steps to reduce the gap between their cash on hand and their debt obligations. When companies are over-leveraged, their
is much higher because they have fewer assets to move around.
to evaluate the value of a company's stocks or bonds, but they also care about a different kind of liquidity management. Those who trade assets on the stock market cannot just buy or sell any asset at any time; the buyers need a seller, and the sellers need a buyer.
When a buyer cannot find a seller at the current price, they will often have to raise the
to entice someone to part with the asset. The opposite is true for sellers, who must reduce their ask prices to entice buyers. Assets that cannot be exchanged at a current price are considered
Having the power of a major firm who trades in large stock volumes increases liquidity risk, as it is much easier to unload (sell) 15 shares of a stock than it is to unload 150,000 shares. Institutional investors tend to make bets on companies that will always have buyers in case they want to sell, thus managing their liquidity concerns.
May 3, 2024 · Maintaining strong liquidity helps position your midsize business to be agile and resilient in an unpredictable business environment. Here are five ways you can strategically put liquidity to work. 1. Invest in digital transformation. Using liquidity in digital transformation initiatives can be a smart way to drive long-term growth.
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Liquidity management involves the efficient management of liquid assets, cash, or securities that can be readily converted into cash, to meet short-term obligations such as payments for goods, services, and debt. This requires strategies and models to minimize liquidity risk, which is the risk that an entity will not be able to execute a ...
