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What is Liquidity ?

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Welcome to our wonderful website. So Friends, today we are going to know in this article, What is Liquidity? You must have heard the name of liquidity in the stock market, but do you know, what is liquidity in actual, and to know How liquidity works in the stock market, read this article till the end.

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Let’s start today’s wonderful article…

First let’s see,

● What is Liquidity :-


So understand this easily we can say that, if we go to buy something in the market and its availability remains constant, then we can assume that there is enough liquidity in that commodity.

Liquidity describes the level at which a share can be immediately bought or sold in the market without affecting the price of the asset. Market liquidity refers to the level at which properties can be bought or sold at stable prices in a market such as the stock market or city property market. ‘Cash is considered the most liquid while property, fine art and all other collectibles are the least liquid.’

● Standards of Liquidity :-

Cash is considered the standard for liquidity because it can be most quickly and easily converted into other assets.

To understand you in a better way, let us understand it through a small example.

Suppose if a person wants to buy a TV for $5000, then cash is the asset in exchange for which that person can easily buy a TV. Now if she has $5000 worth of jewelry, she might find it a bit difficult to buy a TV by giving away these jewels. He has to first raise the cash by selling the jewelry which may take some time. Then with that cash he can buy TV.” So we can say that the liquidity of cash is more than that of jewellery.”

● Liquidity in the market :-

In the above example you have seen that it is almost impossible to buy TV for jewelry as there is no such market where jewelry and TV are interchangeable. There is so much liquidity of shares available in the stock market that buyers and sellers are found for any stock almost immediately and the deal ends at a fast pace. The real estate market has very less liquidity than the stock market.

● Factors in investment :-

It happens many times that due to non-availability of buyers in the market, the property may have to be sold at prices below its market prices. Whenever you invest in an asset, always keep in mind how much liquidity is there in that asset. And there will be no problem in selling it.

Now let’s see the last point,

RBI

● How RBI Controls Liquidity :-

RBI controls the liquidity of funds in banks. Here liquidity means ‘Flow of Funds‘ i.e. availability of money. Banks and financial institutions provide funds to the general public through business loans and consumer loans. These loans are usually meant to increase the demand for goods. This increased demand causes the rise of inflation. That is why RBI keeps control on this liquidity by changing the interest rates and CRR from time to time.

Friends, today we saw in this article What is Liquidity? Standards of liquidity, Factors in investing liquidity in the Stock market, and also to see How RBI regulates liquidity and for more such information stay tuned with our website. www.shareinfobazaar.com ||

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