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Liquidity crisis |
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Liquidity crisisA financial crisis that occurs due to lack of liquidity. In international finance, it usually means that a government of central bank runs short of international reserves needed to peg its exchange rate and/or to service its foreign loans.Similar MatchesAccounting liquidityAccounting liquidityThe ease and quickness with which assets can be converted to cash. LiquidityLiquidityThe capicity to turn assets into cash, or the amount of assets in a portfolio that have that capacity. Cash itself (i.e., money) is the most liquid asset. Liquidity diversificationLiquidity diversificationInvesting in a variety of maturities to reduce the price risk to which holding long bonds exposes the investor. LiquidityLiquidityIn financial markets, 'liquidity' refers to the ease of dealing in a security - whether shares, options, warrants or some other instrument. Another way of looking at it is - how easily can the shares can be bought and sold without significantly moving the price?In general, large companies, with hundreds of millions of shares in issue, and high numbers of shares changing hands every day, have good liquidity. If you are selling or buying a parcel of 5,000 shares in AstraZeneca, for instance, your broker won't have any trouble dealing the order.In contrast, small companies with few shares in issue and thin trading volumes, can have very poor liquidity. If you try to sell 5,000 shares in a small company trading on AIM or OFEX, you may have difficulty actually getting the trade done.Associated with liquidity is the concept of the 'spread' which is the difference between the bid and offer price quoted by market makers. The bid price is what the market maker will pay for your shares if you want to sell them. The offer is the price at which you can buy them from him. Large, liquid, stocks have narrow spreads (a good thing). Small, illiquid, stocks have wide spreads (a bad thing). Liquidity ratioLiquidity ratioSee 'acid test'. Further SuggestionsLiquidity trapLiquidity Fund Liquidity preference hypothesis Liquidity premium |
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