wiz-icon
MyQuestionIcon
MyQuestionIcon
1
You visited us 1 times! Enjoying our articles? Unlock Full Access!
Question

Q12. Consider the following statements about Liquidity Crisis:

1. This refers to a situation where an individual, a business or a government is unable to gather enough cash to meet its payment obligations to lenders.

2. A liquidity crisis is similar to a solvency crisis.

Which of the above statements are correct?


A

a) 1 only

Right on! Give the BNAT exam to get a 100% scholarship for BYJUS courses
B

b) 2 only

No worries! We‘ve got your back. Try BYJU‘S free classes today!
C

c) Both 1 and 2

No worries! We‘ve got your back. Try BYJU‘S free classes today!
D

d) Neither 1 nor 2

No worries! We‘ve got your back. Try BYJU‘S free classes today!
Open in App
Solution

The correct option is A

a) 1 only


Liquidity Crisis

  • This refers to a situation where an individual, a business or a government is unable to gather enough cash to meet its payment obligations to lenders.
  • A liquidity crisis is different from a solvency crisis where the total value of an entity’s assets is less than the value of its overall liabilities.
  • A business facing a liquidity crisis may be unable to meet its liabilities in a timely manner, but the value of its assets may still be much greater than that of its liabilities.
  • In some cases, the inability to meet its immediate obligations can force a business to sell its assets at low prices to raise immediate cash. Such a fire sale of assets can end up threatening its solvency.

flag
Suggest Corrections
thumbs-up
0
similar_icon
Similar questions
View More
Join BYJU'S Learning Program
similar_icon
Related Videos
thumbnail
lock
Introduction to Cash Flow Statement
ACCOUNTANCY
Watch in App
Join BYJU'S Learning Program
CrossIcon