What Is Market Liquidity?

Liquidity refers to a bank's ability to meet depositors 'withdrawals of cash, payment of debts due, and normal borrowers' loans. One of the operating principles of western commercial banks. The solvency of a bank is generally determined by the proportion and structure of the bank's assets and liabilities. Western money and banking theory has two opposing views: one view emphasizes that the asset structure of a bank should be compatible with its debt structure in terms of maturity; the other view is not necessarily compatible, as long as the bank can sell its assets quickly May be able to obtain credit guarantees from other institutions and still maintain their solvency.

fluidity

There are three usages or meanings of Liquidity. One is the liquidity of the entire macro economy and the amount of money invested in the economic system. The excess liquidity from the whole year of 2007 to August 2008 means that there is too much currency investment. These excess funds need to find investment outlets, so there is an investment / economic overheating phenomenon, and

A mobile market is characterized by buyers and sellers in the market at all times. Another definition of liquidity is the possibility that the price of the next trade will be equal to the price of the previous trade. If there are many buyers and sellers in a market, then the market is very liquid. Such a market is called a deep market. Orders have little effect on the price of goods in such markets. The number of purchases and sales of a good can be regarded as the liquidity of the good.

Liquidity is a reflection of assets

Liquidity risk refers to

Division of labor system

^[2] In fact, as an economic phenomenon of globalization, from the perspective of external factors, mainly under the new pattern of international division of labor and the transfer of industrial structure, manufacturing has developed rapidly and the surplus in processing trade has surged. At the same time, due to factors such as distortion of factor prices in China, the price competitiveness of export products has long existed, and the rapid growth of foreign exchange reserves has led to the rapid expansion of the base currency invested by foreign exchange funds.

The export of US dollars through the capital account deficit often means that the demand for the domestic-dominated real economy of the manufacturing industry has increased, leading to the growth of the domestic real economy; while the export of US dollars through the current account means that under the condition of non-monetization of gold, Weak economic demand and increased demand for the domestic virtual economy (including real estate, stocks, bonds and other assets that can be repeatedly speculated), which will lead to the migration of the domestic manufacturing industry and the virtualization of the economy. High-growth, low-end producers, such as the emerging economies of China, carry out international division of labor and import monetary capital and industrial capital into these developing countries.

Liquid capital channel investment

Global capital has poured into China under various names-direct investment, indirect investment and strategic investment, and in various identities-real estate investment funds, equity investment funds, venture capital funds, and makeover hedge funds. The foreign investment entering the real estate industry in 2004 was about 270 billion yuan, and the first quarter of 2005 was about 58.3 billion yuan. In the first quarter of 2007, China s foreign exchange reserves increased far more than the trade surplus (US $ 46.4 billion) and the actual use of foreign direct investment ( $ 15.9 billion), with a gap of $ 73.4 billion.

The main channels for China's foreign capital inflows are foreign trade surplus, foreign direct investment, foreign institutional investment funds, and speculative funds. From 2001 to 2006, China s foreign trade surplus increased from US $ 21.3 billion to more than US $ 177.5 billion. The ratio of trade surplus to GDP rose from 1.7% to 6.9%, far higher than the European Union s 2.5% and Japan s 1.5%. In addition, huge amounts of speculative funds flowed in through various channels, although no specific monitoring data has been available so far.

Liquidity balance of payments trade

The process of global trade liberalization is accelerating, factors are deployed globally, and productivity levels are improved. In particular, the combination of high technology and large capital in developed countries with low-cost labor in developing countries has led to lower product prices and low inflation. It is the case of deflation. As central banks around the world have adopted anti-deflationary policies, money supply has increased, interest rates have fallen, and demand for product transactions has decreased, which will inevitably cause excess liquidity.

According to statistical analysis, in the eight years from 1999 to 2006, China had a current account surplus of tens of billions of dollars almost every year. It was $ 30.4 billion in 2002, $ 31.2 billion in 2004, and reached a record high of $ 177.5 billion in 2006. The surge in foreign exchange reserves brought by the continuous double surplus has made newly-added foreign exchange funds the main channel for China's liquidity supply. At present, 60% of China's excess liquidity funds come from foreign exchange funds. Central bank data show that in the first quarter of 2013, other foreign exchange inflows increased by USD 85.1 billion, a year-on-year increase of 16%. At the same time, as the central bank has less and less room for tightening monetary policy operations and the improvement of investment efficiency has promoted the increase of bank credit, China's macro liquidity will still increase at a high level.

Liquidity international financial market

The globalization of financial markets has promoted financial innovation and improved the operating efficiency of financial markets. On the one hand, the speed of currency circulation has been increased. On the other hand, various credit creation tools have greatly enlarged the total amount of social credit and made it tradable. The amount of money increased rapidly. According to IMF calculations, the leverage effect of financial innovation is constantly expanding. In 2006, the global financial derivatives transaction volume reached 412 trillion US dollars, which is 10 times the global GDP. In 2006, M2 accounted for 122% of global GDP and accounted for global liquidity. The proportion of securitization claims is only 142% of global GDP and 13% of global liquidity; financial derivative products account for 802% of GDP, providing 75% of global liquidity.

Especially after the subprime mortgage crisis, in order to alleviate the lack of liquidity in Europe and the United States, they have once again injected water into the market. As of April 25, 2013, global financial institutions lost USD 308.3 billion, of which USD 152.7 billion was lost in the United States, USD 139.8 billion was lost in Europe, and USD 15.8 billion was lost in Asia. However, the subprime mortgage crisis caused more than US $ 945 billion in global economic losses. For this reason, the Federal Reserve and the European Central Bank injected more than US $ 1.6 trillion into the market.