...willing buyers and sellers. Another elegant definition of liquidity is the probability that the next trade is executed at a price equal to the last one.[citation needed] A market may be considered deeply liquid if there are ready and willing buyers and sellers in large quantities. This is related to market depth that can be measured as the units that can be sold or bought for a given price impact. The opposite is that of market breadth measured as the price impact per unit of liquidity. An illiquid asset is an asset which is not readily salable due to uncertainty about its value or the lack of a market in which it is regularly traded. The mortgage-related assets which resulted in the subprime mortgage crisis are examples of illiquid assets, as their value is not readily determinable despite being secured by real property. Another example is an asset such as a large block of stock, the sale of which affects the market value. The liquidity of a product can be measured as how often it is bought and sold; this is known as volume. Often investments in liquid markets such as the stock market or futures markets are considered to be more liquid than investments such as real estate, based on their ability to be converted quickly. Some assets with liquid secondary markets may be more advantageous to own, so buyers are willing to pay a higher price for the asset than for comparable assets without a liquid secondary market. The liquidity discount is the reduced promised yield or expected return...
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...Market liquidity From Wikipedia, the free encyclopedia Jump to: navigation, search "Liquidity" redirects here. For the accounting term, see Accounting liquidity. In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value. Money, or cash in hand, is the most liquid asset, and can be used immediately to perform economic actions like buying, selling, or paying debt, meeting immediate wants and needs.[1] An act of exchange of a less liquid asset with a more liquid asset is called liquidation. Liquidity also refers both to a business's ability to meet its payment obligations, in terms of possessing sufficient liquid assets, and to such assets themselves. Contents [hide] * 1 Overview * 2 Futures * 3 Banking * 4 References [edit] Overview A liquid asset has some or more of the following features. It can be sold rapidly, with minimal loss of value, any time within market hours. The essential characteristic of a liquid market is that there are ready and willing buyers and sellers at all times. Another elegant definition of liquidity is the probability that the next trade is executed at a price equal to the last one. A market may be considered deeply liquid if there are ready and willing buyers and sellers in large quantities. This is related to the concept of market depth that can be measured as the units that can be sold or bought for a...
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...Thesis for the Degree of Master of...? INCORPORATING LIQUIDITY RISK INTO VAR MODEL TO IMPROVE RISK MANAGEMENT AND APPLYING THE LIQUIDITY ADJUSTED VALUE AT RISK MODEL ON VIETNAMESE STOCK MARKET Student: Ten truong: Ten khoa hoc: September, 2012 INCORPORATING LIQUIDITY RISK INTO VAR MODEL TO IMPROVE RISK MANAGEMENT AND APPLYING THE LIQUIDITY ADJUSTED VALUE AT RISK MODEL ON VIETNAMESE STOCK MARKET by student Avised by Ten giao su Submitted to Ten khoa of Ten truong in the partial fulfilment of the requirements for the degree of Master of ...? Dissertation Committee ...Ten thanh vien hoi dong ABSTRACT In this paper, based on Bangia et. al (1999) Liquidity Adjusted Value at Risk, an explanation and demonstration for the importance of integrate liquidity risk component into Value at Risk Model are presented. The component is considered to be resulted from the exogenous liquidity risk, indeed, the bid-ask spread of a stock or a portfolio. This research is conducted from the analysis of an estimation of Value at Risk (VaR) and Liquidity adjusted Value at Risk for two portfolios containing stocks that are currently trading on Vietnamese Stock Market. After applying the Bangia Model to calculate, the backtesting will be executed to check the accuracy level of the results. The difference between the results of two portfolios, according to separate approaches will be the evidence to reach the conclusion of the research. Table of Contents List of...
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...elsevier.com/locate/jfec Stock market liquidity and firm value$ Vivian W. Fang a, Thomas H. Noe b,c, Sheri Tice c,Ã a Rutgers Business School, Rutgers University, Newark, NJ 07102, USA Said Business School and Balliol College, University of Oxford, Oxford OX1 1HP, UK c A.B. Freeman School of Business, Tulane University, New Orleans, LA 70118, USA b a r t i c l e i n f o abstract Article history: Received 25 April 2008 Received in revised form 19 August 2008 Accepted 28 August 2008 Available online 21 June 2009 This paper investigates the relation between stock liquidity and firm performance. The study shows that firms with liquid stocks have better performance as measured by the firm market-to-book ratio. This result is robust to the inclusion of industry or firm fixed effects, a control for idiosyncratic risk, a control for endogenous liquidity using two-stage least squares, and the use of alternative measures of liquidity. To identify the causal effect of liquidity on firm performance, we study an exogenous shock to liquidity—the decimalization of stock trading—and show that the increase in liquidity around decimalization improves firm performance. The causes of liquidity’s beneficial effect are investigated: Liquidity increases the information content of market prices and of performance-sensitive managerial compensation. Finally, momentum trading, analyst coverage, investor overreaction, and the effect of liquidity on discount rates or expected returns...
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...------------------------------------------------- ------------------------------------------------- PROFITABILITY RATIO ANALYSIS: Najmun Nahar Srity Return on Asset (ROA): ID.No.091-11-924 Figure: Return on Asset (ROA) Interpretation: ROA (Return on Asset): ROA is a indicator of managerial efficiency, it indicates how capable the management of bank has been converting the institution’s assets into net earnings. In this example, the DBBL earned in year 2010 is 1.989693165 and in 2009 is 1.39102595.The Premier Bank in year 2010 is 2.632 and 2009 is 2.2988, which means the 2010 is than the 2009 by using tk. 100 of assets. Here we see that Premier Bank is higher on ROA, SO Premier bank is better than DBBL. Return on Equity (ROE): Figure: Return on Equity (ROE) Interpretation: ROE (Return on Equity): ROE is measure of rate of return following to this bank’s shareholder. If approximates the net benefit that the stockholder have received from investing their capital in the bank. For this example, DBBL shareholders will get 2010 is 28.63057606 and 2009 is 26.1431769. The Premier Bank shareholders get in 2010 is $28.0636 and 2009 is 23.4650, which mean the...
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...Simulation: Managing Liquidity Lawrence Sports Simulation: Managing Liquidity This paper will discuss the three alternative working capital policies that manage working capital. Team D will identify the policy in which the team believes that Lawrence uses and will then make a recommendation on what policy Lawrence Sports should continue to use. This paper will then go on to include an evaluation of the risks that are associated with each of the policies as well as discuss the contingencies for the policy in which is recommended. This paper will also discuss the performance measures that could be used to evaluate the team’s recommendation. Finally, this paper will discuss an implementation plan for the team’s recommendation. Alternate Capital Policies Current Policy (Conservative Approach) The current policy in place at Lawrence is one that can be considered a conservative approach. The Conservative Approach uses long-term financing for the company’s long term assets, a few of the company’s temporary current assets, and all of the company’s permanent current assets (Emery et al., 2008). This has resulted in high costs of financing for Lawrence Sports with little risk; causing the company’s profitability to be low. Simply put; Lawrence has predominantly financed all of its current assets using long-term sources of financing where only a small portion of its assets sing short-term financing. This presents the risk of Lawrence developing a liquidity issue as a result of...
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...ATMonitor Commentary September 2011 Issue Fragmentation of Liquidity www.atmonitor.co.uk Fragmentation of Liquidity ATMonitor Commentary Foreword This is not an academic paper on theoretical discussions but rather a series of practical questions and answers that members of MyATMonitor have asked and industry experts answered. Our primary goal is to bring knowledge that will be useful to traders on the buy side. In fact, this philosophy is well reflected in the very heart of MyATMonitor, a reliable, independent and trusted peer-group network of and for buy-side only institutional traders. This publication has been compiled from ongoing Q&A activity on the MyATMonitor Expert Panels. At the time of publication, the Expert Panels on MyATMonitor are Dark Pools, Commission Sharing Arrangements, EMS/OMS Relationships, Fragmentation of Liquidity, MiFID II and Transaction Cost Analysis and Best Execution. The ATMonitor team would like to thank all members and experts that have generously contributed to the success of MyATMonitor. ATMonitor Team. www.atmonitor.co.uk 2 Fragmentation of Liquidity ATMonitor Commentary Experts Panellists (in the order of appearance): Steve Grob Director of Group Strategy, Fidessa Steve is responsible for Fidessa’s strategic development.This includes the development of new geographic markets and strategic partnerships and driving new industry initiatives. As part of this Steve heads up the firm’s strategy in response to the fragmentation...
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...[pic] |Background | BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited) registered under the Companies Act 1913 on the 2nd of August, 1988, started its operations from the 21st of January ,1989. It is governed by the Banking Companies Act 1991. The Bank was established as the policy makers of the country felt the urgency for a bank in the private sector for financing small scale Industries (SSIs). At the outset, the Bank started as a joint venture enterprise of the BCC Foundation with 70 percent shares and the Government of Bangladesh (GOB) with the remaining 30 percent shares. The BCC Foundation being nonfunctional following the closure of the BCCI, the Government of Bangladesh took over 100 percent ownership of the bank on 4th June 1992. Thus the Bank is state-owned. However, the Bank is not nationalized; it operates like a private bank as before. BASIC Bank Limited is unique in its objectives. It is a blend of development and commercial banks. The Memorandum and Articles of Association of the Bank stipulate that 50 percent of loanable funds shall be invested in small and cottage industries sector. |Present Chairman |Mr. Sheikh Abdul Hye Bacchu | |Present Managing Director |Mr. Kazi Faqurul Islam | Capital Position |Authorized capital |Tk. 2000.00 million | |Paid up capital...
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...Liquidity is your company's ability to pay the bills as they come due. We've all heard the saying "Cash is king," so here are seven quick and easy ways to improve your company's liquidity. Sweep accounts: Use sweep accounts through your financial institution. This will allow you to earn interest on any excess cash balances by "sweeping" or transferring the funds into an interest-bearing account when the funds aren't needed and sweeping them back to your operating account when you do need them. Overhead: Assess your overhead costs and see if there are opportunities to decrease them. Lowering overhead has a direct impact on profitability. Overhead expenses, including rent, advertising, indirect labor and professional fees, are indirect expenses that you incur to operate the business outside of direct material and direct labor. Unproductive assets: If you have unproductive assets that the business is just storing, then it's time to get rid of them. The only reason you should spend money on assets such as buildings, equipment and vehicles is to generate revenue. Accounts receivable: Monitor accounts receivables effectively to ensure that you're billing your clients properly and that you're receiving prompt payments. Accounts payable: Negotiate longer payment terms with your vendors whenever possible to keep your money longer. Owner's draws: Monitor the amount of money that's being taken out of the business for non-business purposes such as owner's draws...
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...Nhận xét: Các chỉ số không ổn định từ năm 2010 đến năm 2014 1) Chỉ số CR vẫn chứng tỏ công ty có khả năng thanh toán các khoản nợ ngắn hạn bằng tài sản ngắn hạn, tuy nhiên không ổn định qua các thời kì. * Năm 2010, chỉ số CR của công ty gần như vừa đủ để >1, do đó khả năng thanh khoản là có, tuy nhiên vẫn nằm ở mức nguy hiểm do quá gần mức tối thiểu do nợ ngăn hạn tăng đột biến từ mục Current portion of long-term debt. Các khoản Current portion of long-term debt tăng cao một cách đột ngột là rất nguy hiểm và sẽ ảnh hưởng lâu dài nếu không có một chiến lược kinh doanh cũng như tầm nhìn xa trong thời điểm kinh tế bắt đầu vào thời kì suy thoái. * Như đã nói, các khoản Current portion of long-term debt giảm nhẹ năm 2011, tăng mạnh vào 2012 và đỉnh điểm là vào năm 2013 và giảm nhẹ vào năm 2014. Tuy nhiên công ty cũng đã cố gắng giữ chỉ số ở 1 mức ổn định cố định, mặc dù mức ổn định của công ty chưa thật sự là an toàn đối với 1 tập đoàn lớn. 2) Chỉ số QR của công ty từ năm 2010 đến 2014 đều <1. Công ty hoàn toàn ko đủ khả năng thanh toán các khoản nợ ngắn hạn bằng các tài sản có thể thanh toán nhanh. * Năm 2010 đến 2013, giá trị Inventory của công ty có xu hướng liên tục tăng. Đây là tín hiệu đáng báo động do công ty đẩy mạnh sản xuất trong thời kì khó khăn hoặc do mức tiêu thụ giảm mạnh. Tuy nhiên công ty vẫn tiêp tục tồn kho với 1 lượng hàng lớn, ảnh hưởng rất mạnh đến khả năng thanh khoản nhanh của công ty. * Năm 2014 giá trị Inventory có sự giảm...
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...2004 Liquidity Adjustment in Value at Risk (VaR) Model: Evidence from the Indian Debt Market Sunando Roy* Conventional Value at Risk models are severely constrained while dealing with liquidity risk. This inevitably leads to an underestimation of overall risk and consequently misapplication of capital for the safety of financial institutions. Standard Value at Risk (VaR) model assumes that any quantity of securities can be traded without influencing market prices. In reality, most markets are less than perfectly liquid and many securities cannot be traded with ease in markets. This is especially true for emerging market economies where the process of financial sector reform and deepening is currently taking place. Despite episodic evidences of liquidity crisis in the Indian financial markets, risks associated with market illiquidity have not been effectively incorporated into the VaR models. In the face of sudden and persisting off-market prices of some of the securities in their portfolio, the Indian financial organizations often find it difficult to offload these securities without booking significant trading losses. As a consequence, several securities exhibit very low levels of turnover in the secondary segment of the debt market. Also, in most cases, measures of market risk fail to capture the costs of carrying illiquid assets in their portfolio. This becomes a constraining factor for market growth. In this context, the paper attempts to construct a Liquidity adjusted...
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...“The Importance of Managing Liquidity For A Company” 1. To stay afloat. For a company to operate well it needs capital. If you have enough capital, a company will not face any unnecessary 'hiccups' in fulfilling its mission and objective. To fulfill a company's objective, it needs to pay for its working capital in order to make profits. Therefore, managing the liquidity is important for a company just to stay afloat and subsequently make money. 2. Helps paying bills with FREE money. When the company has enough capital and working capital for it to operate well without hiccups, it produces finished goods/services and it sells well. Demand starts to kick-in. Soon the company will have MORE than enough working capital and it can save some, in cash. If the company is efficient enough that it requires little working capital, that profit-sharing liquidity could helps paying part of, if not fully, for the company's working capital. 3. Economic Moat advantage. The result of prudent management of company's resources and liquidity, the company's Net Profit Margin improves. Suppliers now depend on your business to make ends meet. The company moves higher in value-chain. The barrier on entry for the same business model is higher. The company invests a little on Branding. Result, Cash would be piling up fast. This is what Buffett calls 'moat'. When crisis comes, it foresees no problem with its own company in making through this crisis, because reserves are sufficient. The management...
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...What is meant by liquidity? Liquidity is the ability to pay current obligations or a company’s ability to meet current (short-term) obligations. What metrics can be used to assess improvement or deterioration in liquidity? Liquidity is measured with several financial statement metrics (financial statement ratios). The metrics that can be used to assess improvement or deterioration in liquidity are current ratio, working capital, the quick ratio (acid-test ratio), accounts payable turnover (APT), and the cash conversion cycle (CCC). The financial analyst may regard poor scores on liquidity metrics (or ratios) as a signal that the company is unable to invest in research and development that it needs in order to remain competitive. Or, poor liquidity financials can mean that the company will have to cut corners on infrastructure maintenance, or reduce advertising and promotion expenses (thereby cutting into future sales). How is liquidity influenced by debt? Liquidity is important for both individuals and companies. While a person may be rich in terms of total value of assets owned, that person may also end up in trouble if he or she is unable to convert those assets into cash. The same holds true for companies. Without cash coming in the door, they can quickly get into trouble with their creditors. High liquidity means a company has plenty of cash and cash-like assets to pay off its debts. Low liquidity means a company is short on cash and may be unable to pay its...
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...Foot Locker Inc. Liquidity Financing Activities • Net cash used was $181 million in 2012 as compared with $178 million in 2011 • Repurchased 4,000,161 shares of its common stock in 2012 for $129 million • Declared and paid dividends totaling $109 million and $101 million in 2012 and 2011 • Representing a quarterly rate of $0.18 and $0.165 per share in 2012 and 2011 • Received proceeds common stock and treasury stock, 2012 and 2011, $48 and $22 million • Recorded excess tax benefits compensation of $11 million and $5 million for 2012 and 2011 --------------------------------------------------------------------------------------------------------------------- Free Cash Flow Net cash flow provided by operating activities compared free cash flow. Uses free cash flow: • Measure of performance • Strength of the company • Ability to generate cash 2012 2011 2010 (in millions) Net cash provided by operating activities $ 416 $ 497 $326 Capital expenditures (163) (152) (97) Free cash flow (non-GAAP) $ 253 $ 345 $229 ---------------------------------------------------------------------------------------------------------------------Operating Activities Operating activities cash $416 million in 2012, compared...
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...LIQUIDITY MANAGEMENT 2.0 OBJECTIVES: In this unit, an attempt has been made to understand the following aspects of liquidity management: ● Definition of Liquidity ● Dimensions and Role of Liquidity Risk Management ● Measuring and Managing Liquidity ● Measurement of Liquidity through Ratio Analysis 2.1 INTRODUCTION: The objectives of ALM are two fold: ensuring profitability and ensuring liquidity. Liquidity which is represented by the quality and marketability of assets and liability exposes the organization to liquidity risk. Unlike other risks like interest rate risk, market risk, operational risk etc. that can threaten the very solvency of the bank, liquidity risk is a normal aspect of every day management of a financial institution. In extreme cases, liquidity problems translate into solvency risk problems. As such, bankers should be more aware of the need for bank liquidity. 2.2 DEFINITION: Banks need liquidity to meet deposit withdrawals and to fund loan demands. The variability of loan demand and variability of deposit determine a bank’s liquidity needs. Liquidity represents the bank’s ability to accommodate decreases in liability and to fund increases in assets. A bank is said to have sufficient liquidity when it can obtain sufficient funds either by increasing liabilities or by converting assets, promptly at a reasonable cost. 2.3 DIMENSIONS & ROLE OF LIQUID & RISK MANAGEMENT: Bank’s liquidity management is the process of generating...
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