Liquidity

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Liquidity

 

the mobility of the assets of enterprises, firms, or banks in capitalist countries, ensuring the genuine ability (capability) to pay off within a given period all liabilities and lawful monetary claims.

The degree of liquidity is defined as the ratio between the ready money and quickly salable assets of an enterprise, firm, or bank and the sum of its short-term liabilities. Quickly salable (liquid) assets include government securities, the stocks and bonds of large corporations (which can always be sold on the stock exchange), fixed-term promissory notes of respectable firms (which are accepted without difficulty for discounting and rediscounting by banks), and gold and other precious metals. Also included in calculations of liquidity is assured debtor liability, that is, accounts receivable and the like that can be repayed on first request or within a brief period. Easily salable material-commodity resources are also considered among the liquid assets of industrial and commercial enterprises. The higher the percentage of assets that can be rapidly converted into ready cash, the greater the liquidity of an enterprise, firm, or bank.

The liquidity of commercial banks—the uninterrupted payment of depositor claims—is of particular importance in the capitalist economic system. In order to assure such liquidity, legislation on banking usually establishes the level of cash reserves that commercial banks must maintain in a central bank; the level is determined as a percentage of the total current assets and term deposits and is referred to as a minimum bank reserve.

Business fluctuations and, in particular, economic crises lower the liquidity of enterprises, firms, and banks and lead to many bankruptcies. Under the conditions of the general crisis of capitalism, the liquidity of less powerful banks is declining; they are being absorbed by larger banks, which in turn merge into giant banks.

A specific form of liquidity is international liquidity, defined as the ratio between the gold currency reserves of governments and central banks of the capitalist countries and the sum of their foreign payments that must be guaranteed by these reserves. After World War II this ratio declined, leading to a sharp aggravation of the problem of international liquidity. Circulation related to foreign trade expanded considerably, in terms of physical volume and especially in terms of value. This expansion was a result of general inflation and the rise of prices, combined with an uneven distribution of gold-currency reserves and the relatively stable level of the overall total of these reserves. (This stability is due in part to the depressed price of gold, which was artificially maintained by the USA: prior to December 1971 the price of gold was $35 per troy ounce, after which it rose to $38 and then, in February 1973, to $42.20.)

M. G. POLIAKOV

References in periodicals archive ?
For both sovereign and corporate bonds, ESMA sees a correlation between increased stress in financial markets and a deterioration in market liquidity.
'The new government would have to find ways and options to drive the market liquidity again,' he said.
These results bring about reflections regarding the market liquidity versus expected market risk/return relationship in Brazil.
There are three main types of liquidity in financial markets: market liquidity, which reflects the ability of market participants to execute large transactions at low cost with only a limited effect on the price; funding liquidity, which refers to the ability of an organisation (such as a bank) to raise debt as required at a reasonable cost; and monetary liquidity, which reflects the looseness of monetary conditions, in part owing to the stance of central banks.
Rather, he calls for more research and data to determine exactly what kind of impact regulation has on market liquidity.
His interpretation of the liquidity risk was sensitivity of stock returns to unexpected changes in market liquidity. His research results indicate that high quality of the data is associated with low liquidity risk.
The large issue is designed to replace part of an even bigger issue of 50 billion riyals worth of three-year government bonds that were issued in January 2011, as part of the central bank's efforts to manage lose money market liquidity. Last March, the central bank launched quarterly bond sales worth a total of 4 billion riyals, allocated directly to banks.
However, all those works neglect the reliability risk and the spot market liquidity risk.
It is a pleasure for me to give this keynote address on the occasion of AFME's 8th Annual European Market Liquidity Conference.
This business practice may increase the cost for foreign traders to do business on the power exchange and deter foreign traders from entering the Romanian electricity wholesale market, thereby reducing market liquidity and efficiency, the Commission said.
Minister of Finance & Economic Affairs Christopher Sinckler said the sale of the shares would ensure broad ownership and "economic democracy and market liquidity".
Mostyn highlighted three issues regarding FHA's multifamily programs that could restrict market liquidity and reduce access to capital: changes to capital requirements for new construction, especially for larger loans; modifications to borrower credit requirements; and a continued backlog of loans due to processing procedures.