An asset is liquid if
A) it earns interest.
B) it is backed by a government guarantee.
C) it can be exchanged for other items of value without high transaction costs.
D) All of the above are correct.

Question

Quizplus · Accepted Answer

Liquidity refers to the ease with which an asset can be converted into cash or other assets without a significant impact on its market value. One of the main factors that determine the liquidity of an asset is the transaction costs associated with buying or selling it. An asset is considered liquid if it can be easily exchanged for other items of value without incurring high transaction costs. Therefore, only choice C is correct. Choices A and B do not necessarily explain liquidity.

An Asset Is Liquid If