International Liquidity


International liquidity is the part of the concept of international finance. International liquidity is foreign currency or gold in the reserve of any country. It is very useful to pay the amount of imported goods and reduce balance of payment deficit. Every country should increase exports for reducing international liquidity shortage.
Under the Bretton Woods System, liquidity was a problem, since it depended on US dollars. The SDR was an attempt to fix this.
It is not easy to determine the adequacy of international liquidity as its composition is heterogeneous. Moreover, there is no exact relationship between the volume of international transactions and the amount of necessary reserves.
International liquidity is important to consider when investing in a foreign country because it indicates how safe your investment is. A country with high international liquidity has plenty of liquid assets, which means it has the cash on hand to pay its debts quickly and easily. A country with less international liquidity may have plenty of assets, but ones which cannot be used to quickly pay off debts, such as natural resources.

Wednesday, 18th May 2016, 01:18:09 AM

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