Market Lingo: Liquidity

Matt Ford  May 13, 2007 2:04 pm

Market Lingo: Liquidity
 
A liquid asset is one that can be readily converted to cash.
 

 


Expanding on the Minyanville dictionary to explain the jargon frequently used by Minyanville professors on the Buzz.


MV professors frequently observe and discuss liquidity--particularly as it relates to the Federal Reserve. A liquid asset is one that can be readiliy converted to cash. The wider the spread between a buyer's 'bid' and a seller's 'ask', the less liquid the market.

The Fed and other central banks influence the amount of liquidity by through various money and credit creating operations. Simply put, the more money and credit injected into financial systems, the greater the liquidity.

Some believe that central bank-generated liquidity encourages excessive leverage and speculation in financial markets. Large growth in money and credit likely spills over into speculative activity over time.


Look up other terms at the Market Lingo Library
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