Liquidity
How quickly something can be turned into cash without moving its price. Scarce exactly when it is most wanted.
Where you will meet it
Liquidity appears in 134 learning outcomes on the CFA syllabus. A few of them:
- Contrast equity trading on an exchange, off an exchange and over the counter
“The trade-off is transparency against market impact: the more volume leaves displayed markets, the more fragmented liquidity becomes and the less information the public price contains.”
- Set out the elements that make up a balance sheet
“Items are split into current and non-current on a one-year-or-operating-cycle test, which is what makes liquidity readable at a glance.”
- Tell a floating-rate note's quoted margin apart from its discount margin
“The discount margin, also called the required margin, is the spread over the reference rate the market currently demands, which reflects the issuer's credit risk and also the note's liquidity.”
- Contrast the parts that make up an interest rate
“A nominal interest rate can be decomposed into a real risk-free rate plus premiums for the risks the lender takes: expected inflation, default, liquidity and maturity.”
Practise it
Practise liquidity until it is automatic: questions that explain every wrong option.
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