Understanding Liquidity & Cash Conversion
Liquidity is the measure of how quickly an asset can be converted into cash, making it an important factor to consider when assessing the value of an asset.Formula
Liquidity Coverage Ratio = High-quality liquid assets / Net cash outflow over 30 day periodHow do I calculate the liquidity?
It is important for banks to understand how to calculate the liquidity coverage ratio in order to protect the financial system. The liquidity coverage ratio is calculated by dividing a bank's high-quality liquid assets into its net cash outflow over a 30-day period. The ratio must be at least 100% in order to be in compliance with regulations. Banks can use tools like Sourcetable to calculate the ratio, which is a good way to determine a bank's liquidity position. The formula for calculating the liquidity coverage ratio is:
Liquidity Coverage Ratio = High-quality liquid assets / Net cash outflow over 30 day period
What is Liquidity Risk Management (LRM)?
Liquidity Risk Management (LRM) is a rule issued by the SEC that requires funds to have a written program to manage their liquidity risk. The program is designed to help ensure the fund can meet redemption requests and other cash needs.
Who is the program administrator?
The program administrator is the person designated by the fund to administer the liquidity risk management program.
Can the program administrator delegate responsibilities?
Yes, the program administrator may delegate certain responsibilities to a sub-adviser.
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Key Points
How do I calculate liquidity?
Liquidity Coverage Ratio = High-quality liquid assets / Net cash outflow over 30 day period
Current Ratio
The current ratio measures a company's ability to pay off current liabilities with its total assets. It is calculated by dividing current assets by current liabilities and is used to assess a company's liquidity and ability to meet short-term obligations.
Liquidity Ratios
Liquidity ratios are financial metrics used to determine a debtor's ability to pay off current debt obligations without raising external capital. They are used to analyze a company's ability to pay off its debt in the event of an economic downturn or other financial distress.
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