An asset is an economically valuable resource that provides benefit to an individual or business. It can be classified as liquid (short term) or non-liquid (long term). Liquid assets can be quickly converted into cash with minimal losses.
Bank notes, short-term promissory notes, treasury bills and other government bonds and bank accounts are examples of liquid asset. A foreign exchange market is considered to be the most liquid market because a high volume of cash is traded every day based on an exchange rate.
It is important to invest in liquid assets to ensure there is cash available in an emergency or downsizing. An individual or business with liquid assets is also in a better position to pay back any debt obligations when due. In fact, it can be one of most important financial decisions you make.
There are key differences between liquid and non-liquid assets, such as:
You have an emergency fund when you have liquid assets and that’s why you need to take inventory of how much you have on-hand. However, your non-liquid with assets are also important because it’s an indicator of the health of your business. Having liquid cash that can support your expenses for about six months is considered ideal for emergency situations.
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