Which asset has the highest liquidity risk?
Cash is the most
Many other forms of investment, such as real estate, also have high associated trading liquidity risk, as the process of purchase and sale of such assets involve a significant time lapse. Such time required for processing trade increases during times of high uncertainty in an economy.
Cash is the most liquid asset possible as it is already in the form of money. This includes physical cash, savings account balances, and checking account balances. It also includes cash from foreign countries, though some foreign currency may be difficult to convert to a more local currency.
Cash is the most liquid asset, while accounts receivable with long payment terms are the least liquid.
Expert-Verified Answer
Among the options provided, common stock, corporate bond, treasury bond, land, and mutual fund share, the mutual fund share carries the highest liquidity risk.
As we continue with our discussion of the theoretical and practical nature of liquidity risk problems, we turn our attention to asset liquidity risk, which we have defined as the risk of loss arising from an inability to convert assets into cash at carrying value when needed.
Among the choices, the one that should be considered as the most liquid asset is cash itself.
- Cash in a savings account (the most liquid)
- Publicly-traded stocks.
- Corporate bonds.
- Mutual funds.
- Exchange-traded funds.
- Assets like real estate, private equity, and collectibles (the least liquid)
- Cash. ...
- Marketable securities. ...
- Accounts receivable. ...
- Inventory. ...
- Fixed assets. ...
- Goodwill.
Current assets include cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities, and other liquid assets. The Current Assets account is important because it demonstrates a company's short-term liquidity and ability to pay its short-term obligations.
Which asset has the lowest liquidity quizlet?
Money is the least liquid asset.
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.
It basically describes how quickly something can be converted to cash. There are two different types of liquidity risk. The first is funding liquidity or cash flow risk, while the second is market liquidity risk, also referred to as asset/product risk.
High-risk investments typically offer lower levels of liquidity than mainstream investments, so, particularly if something's gone wrong and performance hasn't met expectations, getting access to your money when you want may not be as easy.
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).
The three main types are central bank liquidity, market liquidity and funding liquidity.
Anything of financial value to a business or individual is considered an asset. Liquid assets, however, are the assets that can be easily, securely, and quickly exchanged for legal tender. Your inventory, accounts receivable, and stocks are examples of liquid assets — things you can quickly convert to hard cash.
Market liquidity risk
When market liquidity begins to falter, financial markets experience less reliable pricing, and can tend to overreact. This has a knock-on effect, leading to an increase in market volatility and higher funding costs.
Cash is the most liquid asset because it is readily available and it can be used to make a transaction immediately, since it does not require to be converted into another form.
Cash such as USD, is considered to be the most liquid asset as it provides a widely accepted medium of exchange which can easily be converted into other assets. Real estate and art are asset classes considered to be relatively illiquid.
What is high liquidity?
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.
The simplest way to lower liquidity risk is to always hold sufficient cash to meet demands. However, this is not optimal when organizations seek to make a profit or expand operations.
Answer and Explanation: Checking accounts is the most liquid as you can withdraw money whenever an account holder wants. There is no limitation on money taken out of the account.
On a balance sheet, assets are listed in order of how quickly they can be turned into cash, also known as asset liquidity. Current assets, being the quickest to convert into cash, are listed first. So, if a company needs to pay bills or make immediate investments, it's the current assets they'll look to.
Assets are listed in the balance sheet in order of their liquidity, where cash is listed at the top as it's already liquid. No conversion is required. The next on the list are marketable securities like stocks and bonds, which can be sold in the market in a few days; generally, the next day can be liquidated.
