# Liquidity (moneyness)

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- Modified: 2023-07-25T21:01:47+00:00
- Language: en

## Definition

In the narrower sense, central bank money, also referred to as base money at the ECB. - In a broader sense, central bank money plus foreign exchange plus immediately redeemable money market paper; the last two items are then called "potential liquidity. - In relation to financial markets, the possibility of - buying/selling securities or other values (financial assets) - easily, quickly and at the lowest possible charges - or - converting them into cash or - into another asset (the ease and rate with which an asset can be converted into a medium of exchange). - In another sense, liquidity is the ability and willingness of a company and thus also of a bank to meet its payment obligations on time and in the correct amount (the ability of a firm to meet its payment obligations on time without being forced to raise new funds). - Under normal conditions, this is considered to be the case for banking supervisory purposes if - calculated from the respective reporting date - the cash and cash equivalents available in a month at least cover the expected payment outflows during this period. This is assessed on the basis of a monthly liquidity ratio, which is calculated as the ratio of available cash to callable payment obligations in the first maturity band and must be at least 1.0. - In business administration, also a measure of the speed at which assets turn over compared with liabilities in the balance sheet. - Calculation approaches established by securities analysts, such as the quick ratio in particular. - Regulatory provisions of a bank or insurance company, defined in detail in the course of Basel II. - Solvency must be distinguished from liquidity. This means that - an economic entity cannot meet its current payment obligations, - but cannot raise new funds due to overindebtedness and thus lack of creditworthiness. - See acid ratio, bond spread, cash, bank size, cash laughs, Basel III, stock market liquidity, CAMELS, endogeneity principle, liquidation, money market segments, financial strength, money creation, liquidity provision, liquidity budget, liquidity coverage ratio, liquidity ratio, debtor liquidity ratio, liquidity buffer, liquidity position, liquidity coefficient, liquidity premium theory, liquidity ratio, M1, monetary financial institution, qick fix, qick ratio, risk capacity, solvency, solvency II, solvency supervision, corporate finance, central bank money, payment funds, intermediary parking. - Cf. Deutsche Bundesbank Monthly Report of July 2007, pp. 16 f. (higher liquidity preference leads to higher cash ratio), Deutsche Bundesbank Monthly Report of November 2009, pp. 28 f. (money market management and liquidity needs), ECB Monthly Report of June 2010, pp. 24 ff. (Different concepts of liquidity (["concepts," as it says: you'd just have to know good German!]), Deutsche Bundesbank Monthly Report of August 2010, p. 26 ff. (money market management and liquidity needs), BaFin Annual Report 2010, p. 56 (new liquidity requirements in the wake of Basel III). Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent! University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec. Professor Dr. Eckehard Krah, Dipl.rer.pol. E-mail address: info@ekrah.com https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk https://www.jung-stilling-gesellschaft.de/merk/ https://www.gerhardmerk.de/

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