This
week we asked someone what
they'd like to see in the
newsletter and they said they'd
like Finwise to answer
the question:
Why do soft
cakes become hard and
hard cakes become
soft?
That's
easy !!! All this is about
liquidity.
Soft
cakes become hard because they
lose moisture when exposed to
air, while hard cakes become
soft because they absorb
moisture from the air.
Financially speaking, this can
be likened to the liquidity of
an asset.
😶
Liquidity
you
say ?
Imagine
financial assets as cakes. A
liquid asset (like cash or
easily tradable stocks) can
become "hard," meaning less
liquid, under certain economic
or regulatory conditions. For
example, a financial crisis
might make it harder to quickly
sell stocks without losing
value. Conversely, typically
less liquid assets (like real
estate or certain long-term
investments) can become "soft,"
or easier to sell, due to
favorable market conditions. For
instance, an increase in demand
in the real estate market can
make selling a house faster and
more profitable.
Just
like a cake, the financial
situation of an asset depends on
its immediate environment and
its interactions with it. So,
let's keep our cakes
well-wrapped and our investments
well-monitored! 🍰📈
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