Distinguish between illiquidity and insolvency Why is it-00168
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vu cs001 Computer Proficiency License .
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vu cs001 Mid Term Solved Past Paper No. 1.
Insolvent mean bankrupt or someone who has insufficient assets to cover their debts. Insolvent is not in position to pay its due bills
Illiquidity
In such a position where assets are not immediately or easily be converted into cash. Illiquid assets can be converted into cash, but usually only after a time or at lower value.
Insolvent is in hard time or not an position to revive its working condition compared to insolvency illiquidity is position where business has enough assets only thing is not immediately available. Lender of last resort can take those assets as security to provide the funds.
A government is considering changing its deposit insurance system from one in which deposits are implicitly guaranteed (that is, if a bank fails, people trust the government to put enough resources into the bank so that depositors will lose nothing) to one with an explicit ceiling. What would be the impact of such a change on depositors on bankers?
Bank will be having less money to business as they have to keep money as deposit. Due to keeping more money as required reserve banks will not be in position to lend more loans. It will reduce their business activity. Same time it will increase the liquidity of bank. People will trust then banks more, due to guaranty form Govt.Due to shortage of lending more money to public bank might charge more keeping demand and supply rule in mind. Cost of borrow from bank can increase.
