Discuss the concept of illiquidity as it relates to major investment banks and other financial institutions...
Discuss the concept of illiquidity as it relates to major investment banks and other financial institutions and how this was a major contributing factor to the financial crisis in 2007 onward?
Homework Answers
Liquidity of any bank is the measure of the assets or investment which can be converted to cash in very short period this kind of assets are also called liquid assets. This assets can be converted to cash quickly to meet the cash demand of the customers at the time of requirement. Liquid assets include Cash, Central Bank reserve , Government bonds and securities.
In 2007 financial crises liquidity of the Bank decrease due to easy and high mortgage approval rates increase the demand of the Home which led to real estate prices hike. This led large numbers of homeowners (subprime or not) to borrow against their homes as an apparent windfall.And when this bubble burst Banks suffered too much loss and there was highly liquidity crunch appeared.
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Discuss the concept of illiquidity as it relates to major
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