Liquidity refers to how easily an asset can be converted into cash without significantly affecting its value. Based on this definition, the ranking of the bank assets from most to least liquid is:
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C. Reserves - Reserves are considered the most liquid asset as they are ready cash or deposits that a bank holds to meet its liabilities.
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B. Securities - Securities (such as government bonds or stocks) are generally liquid because they can be sold in financial markets relatively quickly.
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A. Commercial loans - Commercial loans are less liquid than securities because they have specific terms and may take longer to sell or may need to be held until maturity.
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D. Physical capital - Physical capital (such as buildings and equipment) is the least liquid asset as it cannot be quickly converted into cash without potentially significant depreciation in value.
So, the final ranking is: C > B > A > D.