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Liquidity: How it affects investments. Liquidity: How it Affects Investments There
are several factors that influence what assets are the best to invest in. ...
... its cost of capital and acquiring liquidity by offering ... is the risk that specifically
affects a single ... hypothesis predicts that capital investments may create ...
... a portfolio of different kinds of investments will on ... risk is the risk that specifically
affects a single ... can mitigate this risk through liquidity enhancements ...
... several factors including the interest rate, liquidity, collateral and ... The interest
or discount rate affects the future value of investments and loans. ...
... implementation would mop up surplus peso liquidity that has a ... It affects the foreign
exchange since as we have stated earlier, foreign investments helps the ...
Submitted by rocketmandan on May 15, 2007
Category: Business
Words: 1265 | Pages: 6
Views: 129
Popularity Rank: 75,247
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Liquidity: How it Affects Investments
There are several factors that influence what assets are the best to invest in. People often choose investments that give a high expected rate of return, while others choose ones for other reasons. Investors demand for various assets are based on three main characteristics. The first is the expected return the asset provides compared with the returns provided by other assets. The second characteristic is the risk associated with the asset’s expected return. The third characteristic, which this paper discusses, is the liquidity of the asset. Liquidity is a unique characteristic that describes how easy and at what cost an asset is able to be sold. It is important when investing to understand that there is inherent risk with holding assets that are more liquid, but there are also potential greater rates of return with less liquid investments. This paper will analyze liquidity in relation to various types of investments on multiple scales.
Money and Liquidity
Money is often referred to as the most liquid of assets, because it is a medium of exchange, a unit of account, a store of value, and is generally accepted for the payment of debt. A medium of exchange is an important concept with money because it eliminates having to determine the price of one good in terms of others, and all goods and services can be valued with a common unit. The other characteristics of money recognize its value in purchasing assets or lending funds. From an international point of view, money is translated into several currencies, from the dollar in the U.S., to the euro in Europe, and the foreign exchange market determines the value of one currency in terms of another. Investors sometimes choose to hold their assets in the form of money because it is the most liquid asset and does not need to be converted to another form before people are willing to accept it. However, they can expect...
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