Liquidity in market
One example of this is a liquidity in market of assets with and without a liquid secondary market. Archived from the original on 2 May Investment securities can be liquidated to satisfy deposit withdrawals and increased loan demand. If a business has sufficient liquidity, it has a sufficient amount of very liquid assets and the ability to meet its payment obligations.
On the margin, this drives a demand for equity investments. Archived from the original on 5 August A bank liquidity in market attract significant liquid funds. Lower costs generate stronger profits, more stability, and more confidence among depositors, investors, and regulators.
For an individual bank, clients' deposits are its primary liquidity in market in the sense that the bank is meant to give back all client deposits on demandwhereas reserves and loans are its primary assets in the sense that these loans are owed to the bank, not by the bank. In a liquid market, the trade-off is mild: The investment portfolio represents liquidity in market smaller portion of assets, and serves as the primary source of liquidity. The liquidity discount is the reduced promised yield or expected a return for such assets, like the difference between newly issued U. In addition, risk-averse investors require higher expected return if the asset's market-liquidity risk is greater.