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Ch.1 · Comparing Financial Products · easy

Which of the following best describes 'liquidity' as a feature of a financial instrument?

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EXPLANATION

Liquidity refers to how quickly and easily an asset can be converted to cash at or near its fair value. Savings accounts and T-Bills are highly liquid; real estate and unlisted equity are illiquid.

A.The ability of an instrument to generate high returns over the long term

B.The stability of principal value regardless of market conditions

C.The ease and speed with which an instrument can be converted to cash without significant loss of value [✓ Correct]

D.The tax efficiency of the instrument under the Income Tax Act

EXPLANATION

Liquidity refers to how quickly and easily an asset can be converted to cash at or near its fair value. Savings accounts and T-Bills are highly liquid; real estate and unlisted equity are illiquid.

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