A financial asset is considered __ if it can be bought or sold in a financial market.
A a stock
B liquid
C a bond
D a security
The correct answer and explanation is:
Correct Answer: B. Liquid
Explanation:
A financial asset is considered liquid if it can be easily bought or sold in a financial market without significantly affecting its price. Liquidity is a key concept in finance and investing, referring to the speed and ease with which an asset can be converted into cash.
Why the correct answer is B. Liquid:
- Liquidity means that there are many buyers and sellers in the market, allowing for quick transactions.
- A liquid market has a high trading volume, which ensures that assets can be bought or sold quickly.
- Stocks of large, well-known companies and government bonds are examples of liquid assets because they trade frequently and have many participants in the market.
Why the other options are incorrect:
- A. A stock: While a stock can be liquid, not all stocks are. Some are rarely traded and can be hard to sell at a fair price.
- C. A bond: Like stocks, bonds may be liquid or illiquid depending on the issuer and market demand.
- D. A security: This is a broad term that refers to any financial instrument, such as stocks or bonds. A security can be liquid or illiquid depending on market conditions.
In summary, liquidity is a feature of financial assets that allows them to be easily traded in markets. It’s crucial for investors because it means they can access their money quickly if needed. Highly liquid assets are attractive because they reduce the risk of not being able to sell when needed, especially during market downturns or emergencies.