How To Guide For: Understanding Liquidity & How It Works

Liquidity means how quickly you can get your hands on your cash. Liquidity is a measure of the extent to which a person or organization has cash to meet immediate and short-term obligations, or assets that can be quickly converted to do this. The quick ratio, also known as the acid-test ratio, is an indicator of a company's liquidity. In economics there is a term called Liquidity effect which refers to how increases or decreases in the availability of money influence interest rates and consumer spending, as well as investments and price stability. The Federal Reserve, applies mechanisms such as changes in the amount of money banks keep in reserve and the sale or purchase of Treasury securities to create liquidity effect. Rising interest rates that make it more expensive to finance purchases tend to lead consumer purchasing to level off or decline. However, higher liquidity and lower interest rates make it easier to finance purchases. The liquidity effect can help to spur consumer spending and create growth in a recessionary economy. Liquidity can also impact stock returns. To get more in depth information on Liquidity and how it works click on the pictures below to read the articles.