What Is Liquidity? Liquidity refers to the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price. The most liquid asset of all is cash itself. Key Takeaways Liquidity refers to the ease with which an asset, or security, can be converted into ready cash
What Is a Liquidity Crisis? A liquidity crisis is a financial situation characterized by a lack of cash or easily-convertible-to-cash assets on hand across many businesses or financial institutions simultaneously. In a liquidity crisis, liquidity problems at individual institutions lead to an acute increase in demand and decrease in supply of liquidity, and the resulting
What Is a Liquidity Cushion? A liquidity cushion refers to the cash or highly liquid assets that an individual or company might hold to meet unexpected demands for cash during a liquidity crisis. Key Takeaways Liquidity refers to the cash assets a company or individual has on hand. Assets that are not cash and hard
What Is Liquidity Preference Theory? Liquidity Preference Theory is a model that suggests that an investor should demand a higher interest rate or premium on securities with long-term maturities that carry greater risk because, all other factors being equal, investors prefer cash or other highly liquid holdings. Key Takeaways Liquidity Preference Theory refers to money demand
What Are Liquidity Ratios? Liquidity ratios are an important class of financial metrics used to determine a debtor’s ability to pay off current debt obligations without raising external capital. Liquidity ratios measure a company’s ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio, quick ratio
What Is Liquidity Risk? Liquidity risk is the risk that a company or individual will not have enough cash to meet its financial obligations (pay its debts) on time. Liquidity refers to the ease at which an asset can be converted into cash without negatively affecting its market price; the risk arises when a company
What Is a Liquidity Trap? A liquidity trap is an adverse economic situation that can occur when consumers and investors hoard cash rather than spending or investing it even when interest rates are low, stymying efforts by economic policymakers to stimulate economic growth. The term was first used by economist John Maynard Keynes, who defined
What Is a Liquid Market? A liquid market a one with many available buyers and sellers and comparatively low transaction costs. The details of what makes a market liquid may vary depending on the asset being exchanged. In a liquid market, it is easy to execute a trade quickly and at a desirable price because
What is the Lisbon Treaty? The Lisbon Treaty, also known as the Treaty of Lisbon, updated regulations for the European Union, establishing a more centralized leadership and foreign policy, a proper process for countries that wish to leave the Union, and a streamlined process for enacting new policies. The treaty was signed on December 13
What Is a Lis Pendens? A lis pendens is an official notice to the public that a lawsuit involving a claim on a property has been filed. Lis pendens is connected to the concept that a property buyer must assume any litigation that exists pertaining to the property. If a bank is suing the owner of a
