Define International Liquidity
International liquidity is the ability of a given country to purchase goods and services from another country. It is a combination of a country's readily available supply of foreign currency, and the degree to which its assets may be used as a form of payment or converted to the currency of the country with which it is trading.
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Liquidity
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Liquidity is a term which can be used to mean the same as cash, as in liquid assets. Liquidity generally refers to the ease with which assets may be converted into cash or the amount of cash available to an individual or an entity, such as a company or a government, at any given time.
Liquid Assets
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Liquid asset describes resources of cash as well as securities which can be easily sold in order to obtain their cash-equivalent value. Cash resources include physical currency, checking accounts and certain types of savings accounts. Soluble securities include short-term money market items as well as bonds.
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International Liquidity and Trade
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The wide effects of globalization have impelled countries to engage in trade on an unprecedented scale. To this extent, global economic growth and consequent regional prosperity are heavily affected by countries' supplies of foreign currency and reserves of liquid assets, such as precious metals.
International Liquidity and Exchange Rates
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For a given country participating in international trade, the relative value of its own currency will heavily impact its purchasing power against another country's currency. In other words, if a country has a stronger currency than a given trading partner, it will be able to leverage the liquidity of its own currency into greater buying power upon conversion. By contrast, if a country's own currency is weaker than that of a given trading partner, its relative liquidity becomes diminished as conversion requires value of the home currency be divided rather than multiplied.
International Liquidity and Economic Efficiency
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The higher the level of liquidity in an economy, the more efficiently it functions and expands. In other words, the greater the availability of extent cash resources and easily soluble assets, the greater the more quickly goods and services can be bought and sold. This principle also holds true in the international economy, since the size and scope of countries' currency reserves have a direct effect on how expediently import transactions can be executed.
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