Question

Which of the following assets has the least liquidity ?

• A. Currency
• B. Bond
• C. Real estate
• D. Bank deposit

Hint:

To test for liquidity, ask yourself: "How fast can I get cash for this without losing value?" The harder and slower the process, the less liquid the asset. Real estate is the classic example of an illiquid asset.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Liquidity refers to the ease and speed with which an asset can be converted into cash without affecting its market price. An asset that can be converted to cash quickly is highly liquid, while one that takes time is illiquid.

Step 2: Detailed Explanation:
Let's analyze the liquidity of the options from most to least liquid: \begin{enumerate} \item Currency: Cash itself is the most liquid asset by definition. \item Bank deposit: Savings or demand deposits can be converted to cash almost instantly. \item Bond: A government or corporate bond can be sold on a financial market, but it might take a few days, and its price can fluctuate. It is less liquid than cash or bank deposits. \item Real estate: Land and buildings are the least liquid. Selling a property is a lengthy process that involves finding a buyer, negotiating a price, legal paperwork, and high transaction costs. It cannot be converted to cash quickly. \end{enumerate}

Step 3: Final Answer:
Real estate has the least liquidity among the given assets.