Broad Liquidity

Posted in Finance, Accounting and Economics Terms, Total Reads: 576
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Definition: Broad Liquidity

It is the broadest measure of money supply which includes total amount of money issued by the central bank along with new money created by commercial bank through lending. Broad liquidity includes fund in M3, T-bills with maturity under an year, individual holding in saving bank accounts, commercial paper, bank's acceptance and saving bonds. Cash and currency can be exchanged for financial instruments or be placed in term accounts. Different countries measure supply of money differently.


The included components are still considered to be very liquid or easily convertible to cash. Generally, broad liquidity is the sum total of all the money supply held by financial institutes that is -

• Money which is used as a medium of exchange in the economy which are currency, bank notes, transferable deposits and close substitutes.

• Securities, bond and other financial instruments that can be easily liquidated at a short notice without any significant loss in the value of money invested. The funds maturing within a year are also part of definition of broad liquidity.


It is a measure used by policy makers and investors to forecast inflation.

 


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