Cash Liquidity Management Homework Help

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To start with liquidity, it refers to the degree to which an asset can be bought or sold swiftly in the market without affecting the price of the asset. Cash is the most liquid asset while collectibles, fine art and real estate are relatively less liquid or can be referred as illiquid. The reason behind cash being chosen as the standard for liquidity is that it is one of the most easily convertible assets i.e. it can quickly be turned into other assets. For example, if a person wants to buy a book worth 20 dollars, cash is the best option available to obtain the book. If the person had some other asset like a collection of stamps, then it would have taken a longer time to buy the same book since the person first has to sell those stamps and then use the money he got to buy the book. Therefore it is important to manage cash liquidity. Cash Liquidity Management Homework Help shall throw an insight into it.
 

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Cash Liquidity Management

 
Generally, in finance based on the definition of liquidity, liquidity management is of two types: first one refers to the ability to trade an asset at its current price like bond, stock and the other one applies to large organisations such as financial institutions. In either of the types, the purpose of liquidity management is to reduce the risk of liquidity exposure. To know more about this, students can refer Cash Liquidity Management Homework Help.
 
• Basically while managing the liquidity in a business, investors and lenders look into the company’s financial statements with the help of liquidity measuring ratio to determine the liquidity risk. The evaluation of risk is mostly done by comparing short term liabilities and liquid assets.
 
• Another important aspect of cash liquidity management for the companies that are over leveraged is to reduce the gap between cash in hands and debt obligations.Cash Liquidity Management Homework Help can be referred for further information.
 
• Mostly banks are exposed to stress tests and heavy regulations to assess their liquidity management since these are the vital economic institutions. Such institutions use accounting techniques to meet financial obligations and assess the need for collateral.
 
• The investors not only use the liquidity ratio for the managing liquidity but also a different technique of liquidity management. Investors who trade on assets of stock market cannot buy or sell the assets on their own will and wish, a buyer needs a seller and a seller needs a buyer. For further details on the topic, please refer Cash Liquidity Management Homework Help.
 
• So generally, investors and traders manage liquidity by controlling the liquidity risk. They do not leave much of their portfolios in the markets that are illiquid.

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