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Finance: What is Liquidity? 64 Views
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What is liquidity? Think: water. It's liquid. It can be squeezed into little, tiny spaces and infused into large spaces. A defining trait of liquid is that it can be subdivided into tiny pieces. those pieces move anywhere they want in the same way a liquid market trades actively.
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Transcript
- 00:03
Finance a la shmoop what is liquidity all right liquidity is
- 00:09
not this but liquidity is this alright liquidity or being liquid is the ability [A pool of water]
- 00:17
to pay for things with cash and in some parts of the world
- 00:21
moose pelts most pelts get your moose belt here five for a dollar you might own 4,000 acres of [Man wearing a hat stood by his land]
- 00:27
land in Alaska most your neighbors are well
Full Transcript
- 00:30
moose but when you go into your local Ford dealer to buy a Ford f-150 with the
- 00:34
pimped-out tires and the intentionally off-road package the dealer wants to be [Man purchasing a Ford F150]
- 00:38
paid in cash not in Moose pelts. if you sold those pelts for cash and then paid
- 00:44
him and then you'd be liquid like the rest of the moose well in the real world [A table full of moose juice]
- 00:48
liquid things are stuff like stocks and publicly traded bonds and anything you
- 00:53
can find on eBay that'll turn into cash in less than a week or so original [Website showing Barbie doll and car for sale]
- 00:57
edition of Avengers comic yeah the one where Iron Man and Captain America share
- 01:01
their first kiss and that that one's as good as sold now on the flip side of the [Coin flipped]
- 01:05
coin long term investments like funding two kids in a garage who are building a
- 01:09
search algorithm with likely 10 years or more before an IPO [Kids using a computer in a garage]
- 01:12
yeah those investments are highly illiquid as in the opposite of cash
- 01:18
immediately on hand because there are rarely any other buyers of the private [Man playing the piano to a crowd]
- 01:22
company shares you bought when you invested in them at least not buyers for
- 01:25
a long illiquid time meaning that most people simply won't give you cash for
- 01:29
shares in a company with no profits little don't know revenues or even no [Graph of profits and revenue for a company]
- 01:33
website. So is your home liquid? err not so much but you can borrow against
- 01:39
it liquidly in other words sometimes
- 01:41
illiquid things can allow you to have liquidity you know like if you have a [Man stood by a home holding a mortgage paper]
- 01:46
mortgage of say a hundred grand on a home that's probably worth well over
- 01:49
half a million bucks then any bank will most likely let you borrow a couple
- 01:54
hundred grand pretty much at any time you want [Man borrowing home owner more money]
- 01:56
if you pledged the home as collateral in other words if you don't pay the bank
- 02:00
back they're going to start parking in your garage and pickin out drapes for [Car reversing into garage]
- 02:04
the living room as they repossess it to pay off the money you borrowed from them [Bank man repossessing the home]
- 02:08
promising to pay it back well fortunately this isn't a chemistry course so
- 02:12
there's no need to learn about the solidity and gas-idity[Examples of solids and gas]
- 02:15
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