A liquidity trap occurs when factors that usually stimulate the economy fail to do so, such as a drop in interest rates not motivating consumers to buy more goods and services on credit. John Maynard Keynes developed the theory during the Great Depression, and it can also emerge when consumers suspect interest rates may fall. […]
Liquidity premium is the added value of a liquid investment due to its ease of conversion to cash, making it less risky for investors. Less liquid assets must offer higher returns or lower risk to compensate. Short-term bonds have a liquidity premium, resulting in higher interest rates than long-term bonds. Liquidity premium is a term […]
Market liquidity refers to the ease of selling an investment without affecting its value. Factors affecting liquidity include trading activity, bond rating, maturity date, and investment fund. Short-term bonds, highly rated securities, and those with an investment trust are more liquid. Foreign investments also have varying degrees of liquidity due to laws governing redemption. Liquidity […]
A liquidity gap measures the difference between an individual’s or organization’s liquid assets and liabilities, indicating financial risk. Banks use it to assign interest rates to loans, and measuring it over time helps lenders make investment decisions. A liquidity gap is a measure of the difference between a person’s or organization’s total liquid assets versus […]
