Answer to Question #95036 in Economics for Lusanda Mrasi

Question

Explain three (3) reasons why liquidity or holding onto cash is important.(6)Marks

Answer 1

As you evaluate investments, and consider your overall financial situation, liquidity can be an important factor.

liquidity is the ability you have to convert any asset into cash quickly. The importance of holding onto cash after goes much beyond money. 

Reasons why liquidity or holding onto cash is important:

1) a healthy liquidity ratio helps lenders determine the creditworthiness of a business and provide it with the necessary credit;

2) liquidity will be needed in case of emergency;

3) comparison and close monitoring of liquidity allows the business to make the right decisions about finances.