Chapter 5R, Problem 6MCQ

To determine

The correct option that defines the most liquid asset.

Answer to Problem 6MCQ

Option e is correct.

Explanation of Solution

Explanation for the correct option:

e.

Cash is the most liquid asset that a company or an organization may have as it can be used immediately for purchasing any item or for making payments in cash. Therefore, option e is correct.

Explanation for incorrect options:

a.

Stock is one of the liquid assets as it can be converted into cash but cash is the most liquid asset as no conversion is required. Therefore, option a is incorrect.

b.

Bonds are generally issued for fixed tenure which means if it is converted into cash, the loss in value would be considerable. Therefore, option b is incorrect.

c.

Loans are long-term financial instruments that cannot be easily converted into cash. Therefore, option c is incorrect.

d.

Mutual funds if converted into cash at an early stage will result in a greater loss of its value. Therefore, option d is incorrect.

Economics Concept Introduction

Financial system: Financial system refers to the system that facilitates the borrower to borrow capital and the investors to invest their savings in the financial market.

Liquid asset: An asset can be referred to as a liquid asset if it can be converted into cash easily without any loss in its value.