ANSWER Insolvency occurs when a firm has negative net worth; that is, the firm’s liabilities—what it owes—exceed the firm’s assets—what it owns. Illiquidity occurs when a firm does not have enough cash to meet a sudden demand for repayment of what it has borrowed. The situations are different: A firm can be insolvent and liquid. A firm can also be solvent and illiquid.
ANSWER
ReplyDeleteInsolvency occurs when a firm has negative net worth; that is, the firm’s liabilities—what it owes—exceed the firm’s assets—what it owns. Illiquidity occurs when a firm does not have enough cash to meet a sudden demand for repayment of what it has borrowed. The situations are different: A firm can be insolvent and liquid. A firm can also be solvent and illiquid.