term1 Definition1term2 Definition2term3 Definition3
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liquidity
access to sufficient immediately spendable funds at reasonable cost exactly when those funds are needed
net liquidity position
difference between volume of liquid funds available and the demand for liquid funds
asset conversion
strategy for meeting liquidity needs in which liquid reserves are stored in readily marketable assets that can be quickly converted into cash
liquid asset
any asset that meets three conditions:
1) Price stability
2) ready marketability
3) reversibility
opportunity cost
forgone income that is not earned because idle funds have not been invested in earning assets; also, the yield available on the next best alternative use of an individual's or institution's funds
liability management
use of borrowed funds to meet liquidity needs, in which a financial institution attracts the volume of liquidity it needs by raising or lowering the rate of interest it is willing to pay on borrowed funds
balanced liquidity management
combined use of both asset management and liability management to cover liquidity needs
sources and uses of funds method
approach developed for estimating liquidity requirements that examines the expected sources of liquidity (for a bank, principally its deposits) and the expected use of liquidity (principally its loans) and estimates the net difference between funds uses and sources over a given period of time in order to aid in liquidity planning
liquidity gap
amount by which the sources and uses of liquidity do not match
structure of funds method
method of estimating liquidity that depends on a detailed analysis of deposit and loan customers and how the levels of their deposits and loans are likely to change over time
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