Liquidity Gap


DEFINITION of 'Liquidity Gap'

The difference between a firm's assets and a firm's liabilities, caused by said assets and liabilities not sharing the same properties. This gap can be positive or negative, depending on if the firm has more assets than liabilities or vice versa.

BREAKING DOWN 'Liquidity Gap'

For banks, the liquidity gap can change over the course of the day as deposits and withdrawals are made. This means that the liquidity gap is more of a quick snapshot of a firm's risk, rather than a figure that can be worked over for a long period of time. To compare periods of time banks, calculate the marginal gap, which is the difference between gaps of different periods.

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  2. Do working capital funds expire?

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  3. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  4. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
  5. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
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