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Liquidity is a prime concern in a banking environment and a shortage of liquidity has often been a trigger for bank failures. Holding assets in a highly liquid form tends to reduce the income from that asset (cash, for example, is the most liquid asset of all but pays no interest) so banks will try to reduce liquid assets as far as possible.
An investment normally counts as a cash equivalent when it has a short maturity period of 90 days or less, and can be included in the cash and cash equivalents balance from the date of acquisition when it carries an insignificant risk of changes in the asset value. If it has a maturity of more than 90 days, it is not considered a cash equivalent.
Reserve requirement, a bank regulation that sets the minimum reserves each bank must hold. Quick ratio (also known as an acid test) or current ratio, accounting ratios used to determine the liquidity of a business entity; In accounting, the liquidity ratio expresses a company's ability to repay short-term creditors out of its total cash. It is ...
Solvency and liquidity are related, but very distinct, terms that are valuable to investors. When a company is solvent, it means the company has the ability to pay its debts and liabilities over ...
The purpose of ILG is to make the banking system more resilient to liquidity shocks by requiring banks to hold a minimum quantity of "high quality liquid assets" (HQLA). These HQLA consist of cash, central bank reserves and government bonds to cover net outflows of liabilities under two specific stress scenarios, lasting 14 days and 3 months ...
Liquidity ratios measure the availability of cash to pay debt. [3] Efficiency (activity) ratios measure how quickly a firm converts non-cash assets to cash assets. [4] Debt ratios measure the firm's ability to repay long-term debt. [5] Market ratios measure investor response to owning a company's stock and also the cost of issuing stock. [6]
Large retailers who collect a great deal of cash may have the bank arrange for an armored car company to collect the cash, instead of asking its employees to deposit the cash. Clearing house Usually offered by the cash management division of a bank. The clearing house is an electronic system used to transfer funds between banks. Companies use ...
This yield premium, or spread, can widen due to a decline in the issuer’s creditworthiness or a decrease in the bond’s liquidity, causing its price to fall. 3. Downgrade risk