That works when you have very liquid securities, such as Treasurys or the common stock of IBM or GE.
Citadel traditionally keeps more than a third of its assets in cash or liquid securities, allowing it to pounce when opportunities arise.
Meanwhile, those who borrow at 100 basis points over fed funds to buy attractively priced liquid securities will probably make out like bandits.
After years of painful deflation and stock market stagnation, managers of many Japanese companies have amassed large stockpiles of cash and liquid securities--treasure chests that are, in many cases, undervalued by the stock market.
For the record, when the Fed buys government securities in the market (yes, through dealers, of which Goldman Sachs is one), the ultimate seller gives up a highly liquid asset (government securities), which are not classified as money, for bank deposits, only slightly more liquid, which are classified as money.
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Of course, housing will never be as liquid as something like securities because each house is unique.
But even if a liquid market in such securities could be created, it would still rely on banks with experienced loan officers to assess the credit risk of small firms.
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To be sure, you'll pay a premium, especially for GDRs, that can run as high as 10%, because they're not as liquid as U.S. securities.
This is less important if you buy securities that are very liquid and have the Fed doing all it can to keep both short- and long-term rates artificially low.
CBM, a consultancy, the main potential for online bond-trading is in fixed-income securities that are already fairly liquid: these (notably government bonds and blue-chip corporate bonds) are likely to become more liquid, and more keenly priced.
Perhaps the most striking characteristics of today's agreement - which amends a draft first published in 2010 - is that banks will be allowed to include corporate bonds, some shares and high-quality residential mortgage backed securities in their permitted stocks of liquid assets.
Many of those that failed did so because they had purchased AAA-rated mortgage-backed securities thought to be both sound and liquid investments.
These securities are held in a separately managed account and utilize liquid ETFs and exchange traded options, avoiding bank credit risk.
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Which is that they define cash, central bank reserves and some marketable securities backed by sovereigns and central banks as the highest quality liquid assets.
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