The ability to borrow money on the financial market at any time. In the wake of the global financial crisis that followed the subprime crisis, market liquidity suddenly dried up, and central banks had to keep the market from drying up completely by providing money (admittedly at sometimes steep interest rates). – In the context of the financial market, this also refers to the ability to make a large transaction quickly without significantly affecting the price or incurring a major loss (the ability to sell an asset in a short period of time without causing a noteworthy movement in the price and with minimum loss). The market liquidity defined in this way is determined by – the breadth of the market as the measure of the bid-ask spread and thus the cost of liquidating a position in the short term, – the depth of the market as an expression of the quantity that can be turned over immediately without influencing prices, – the elasticity of the market as a measure of how quickly the market price returns to the equilibrium price after a major transaction, and – the time required for the execution of an order, measured by the period between the liquidation of a position and the related final trade. – See funding liquidity, forms of liquidity, liquidity risk, market liquidity risk, market, tighter, quantitative easing. – Cf. 2007 Annual Report of the Deutsche Bundesbank, pp. 90 f. (market liquidity during the subprime crisis), Monthly Report of the Deutsche Bundesbank of July 2008, p. 41 (perfectly liquid market defined), Monthly Report of the Deutsche Bundesbank of September 2008, pp. 60 f. (significance of market liquidity against the background of the subprime crisis).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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