Market liquidity is crucial for financial stability from "summary" of Economics of Money, Banking and Financial Markets, Business School by Frederic S. Mishkin
Market liquidity plays a vital role in maintaining financial stability within the economy. Liquidity refers to the ease with which an asset can be bought or sold without causing a significant change in its price. When markets are liquid, investors can quickly convert their assets into cash, providing them with the ability to meet their financial obligations in a timely manner.
In times of economic uncertainty or crisis, market liquidity becomes even more critical. A lack of liquidity can lead to widespread panic among investors, causing asset prices to plummet and potentially triggering a financial collapse. This was evident during the 2008 financial crisis, where a lack of liquidity in the housing market led to a domino effect that spread througho...
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