How is market liquidity measured?

It is assessed with several indicators because no single measure captures every dimension. The IMF working paper identifies bid-ask spreads and other transaction-cost measures, turnover ratios, volume-based measures and price-impact measures; execution and settlement information can also indicate immediacy.

What is the difference between market liquidity and accounting liquidity?

Market liquidity concerns the ability to trade an asset efficiently. Accounting liquidity concerns the ability of a company or individual to meet obligations with liquid assets, commonly assessed by comparing liquid assets or current assets with current liabilities.

How do bid-ask spreads and price impact differ?

The bid-ask spread is a visible transaction cost of immediate trading. Price impact measures how much an order changes the market price, making it particularly relevant when assessing the capacity to trade in size.

Amanda Ross | Treasury

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