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Chapter 3: Q.12 (page 111)

Explain the concept of liquidity. Rank the following assets from most liquid to least liquid:

a. Land

b. The inventory of a merchandiser

c. Cash in hand

d. A savings account at a local bank

e. A one-year bond

f. Ordinary shares

Short Answer

Expert verified

All of them can be converted into cash and maximum time period can be taken by one-year bond as it has a fixed time period.

Step by step solution

01

Step 1. Introduction

The ease with which an asset, or security, can be changed into immediate cash without impacting its market price is referred to as liquidity. The most liquid asset is cash, while tangible assets are less liquid.

02

Step 2. Explanation

1. Cash in Hand is most liquid asset.

2. Savings at a local bank- this can be withdrawn whenever possible.

3. Inventory of a merchandiser- Can be converted into liquidity when stock is sold out.

4. Ordinary Shares- Can be converted into liquidity when market falls.

6. Land- Whenever required to sell can convert into cash

7. One Year Bond- In one year it get into cash.

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Most popular questions from this chapter

Explain the concept of liquidity.

Rank the following assets from most liquid to least liquid:

a. Land

b. The inventory of a merchandiser

c. Cash in hand

d. A savings account at a local bank

e. A one-year bond

f. Ordinary shares

Three goods are produced in an economy by three individuals: Good Producer Apples Orchard owner Bananas Banana grower Chocolate Chocolatier If the orchard owner likes only bananas, the banana grower likes only chocolate, and the chocolatier likes only apples, will any trade between these three persons take place in a barter economy? How will introducing money into the economy benefit these three producers?

If you use an online payment system such as PayPal to purchase goods or services on the Internet, does this affect the M1 money supply, the M2 money supply, both, or neither? Explain

In April 2009, year-over-year the growth rate of M1 fell to 6.1%, while the growth rate of M2 rose to 10.3%. In September 2013, the growth rate of the M1 money supply was 6.5%, while the growth rate of the M2 money supply was about 8.3%. How should Federal Reserve policymakers interpret these changes in the growth rates of M1 and M2?

Over several hundred years, payments systems used in countries across the world have evolved. For each of the following situations identify the type of payment utilized and at least one reason why economies are moving from checks to electronic payments.

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c. Edward has just moved to the city to be closer to his office. He was shopping online for some pieces of furniture and he bought a wardrobe and a table lamp. He used a checking account to initiate an automatic bill payment for the items.
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