Mba Finance Mngmt Assignment Free

What will your outlook towards maintenance of liquid assets to ensure that the firm has adequate cash in hand to meet its obligations at all times?

Answer:

INTRODUCTION : Liquid Assets

A liquid asset is one which can be converted in to cash easily on a short notice without losing value. All those assets which do have these three fundamental characteristics are termed as liquid assets. Examples include current account, savings account, marketable securities etc.

Remember all financial instruments are not liquid such as long term bonds, term deposits etc.

Now why cash is liquid or in other words what is the purpose of liquidity? The answer is cash is money. Money is a medium of exchange. So with money you can buy goods and services. You cannot buy them with a car or a bungalow. This is why individuals, companies and governments need to be liquid. we do not live in a barter world where you can exchange goods for goods. This is the basic purpose of liquidity.

In short, liquidity equates to convertibility. Cash is highly liquid because you can convert it to practically anything (a car, an appliance, etc.) in a very short period of time.

To keep a business running, it usually takes on a lot of financial obligations, including paying employees’ salaries and paying off loans and debts. To appease the various stakeholders, an organization must keep a healthy balance of liquid assets. People will be more likely to invest in, or lend to, a company that has enough liquidity to keep up its payments. However, a company can have too much liquidity, which may be a sign that it's holding onto cash that could be invested.

Examples of liquid assets for a corporation are similar to those of an individual:

* Cash

* Funds in the bank

* Stocks

* Bonds

Objectives of Managing Liquid Assets:

The objective of liquid assets management prudently strikes a balance between

* Protecting against loss;

* Ensuring adequate liquidity for day-to-day...