How would you describe Liquidity?

Question

BlackTom AI · Accepted Answer

When evaluating the concept of liquidity, we are looking at how easily and quickly an asset can be converted into cash without significantly affecting its price.
Option a: Fast-Flowing Inventory – While inventory can be sold for cash, it is not the most liquid asset category in many contexts because conversion may depend on demand, stock levels, and the ability to sell quickly at a stable price. This makes it less universally representative of liquidity.
Option b: Short-Term Cash – This directly aligns with liquidity, since cash on hand or assets that can be readily turned into cash within a short period are the most liquid portion of a balance sheet. It embodies immediate availability and minimal conversion frictions.
Option c: Gold Bullion – Gold is relatively liquid compared to many non-cash assets, but it is not as liquid as actual cash or cash equivalents in many standard liquidity discussions, because selling gold involves market pricing, potential brokers, and transaction costs.
Option d: Long-Term Cash – The phrasing is a bit redundant (cash is cash), but the emphasis on long-term suggests funds that are not readily accessible, which contradicts the essence of liquidity that focuses on ease of conversion and availability in the near term.
In summary, the term that best describes liquidity is the asset that can be transformed into cash quickly and with minimal price impact, which is most faithfully captured by short-term cash."

How would you describe Liquidity?

View Explanation

Log in for full answers

Similar Questions

Question18 Which of the following is considered the ultimate liquid asset? Select one alternative: a. Cash b. T-bills c. T-notes d. T-bonds e. Wholesale CDs ResetMaximum marks: 2 Flag question undefined

In Finance, what is the term for how much cash or easily accessible money is available at a given time?

How would you describe Liquidity?

How would you describe Liquidity?

The ability of a business to meet its debts as they fall due is known as

The ability of a business to manage its assets and liabilities is known as

The ability of a business to meet its debts as they fall due is known as

The ability of a business to manage its assets and liabilities is known as

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler