why should lower marketability decrease the liquidity of an

why should lower marketability decrease the liquidity of an asset?

Solution

Liquidity of an asset means, how quickly an asset that can be converted into cash either buying or selling in the market without impacting asset price.

Marketability is a measures of the ability of an asset to be sold or bought. It just indicates whether the asset can be bought or sold easily or not.

So if an asset has lower marketability, means it is very hard to sell or buy that asset in market. On other words, the seller of that asset is expecting a higher price and not getting any buyer immediately, or the buyer of that asset is expecting a lower price but no sellers are agreeing on it. As the time for the transaction will increase the price of that asset will fall slowly for the seller of the asset and price will increase for the buyer of the asset. Until the transaction is occurred the price of the asset may be altered by a large margin. As the price changes while covering the asset in to cash, the liquidity of that asset decreases.

Thus lower marketability decrease the liquidity of an asset.