Rank the following bank assets from most to least liquid: a. Commercial loans b. Securities c. Reserves d. Physical capital

1. Break Down the Problem

To rank the bank assets from most to least liquid, we need to define 'liquidity'. Liquidity refers to how quickly an asset can be converted into cash without loss of value.

2. Relevant Concepts

The concept of liquidity can be understood through various asset types:

• Reserves: These are the most liquid assets as they are essentially cash or cash equivalents held by the bank.
• Securities: These can also be quickly sold or converted to cash, though they may be subject to market fluctuations.
• Commercial loans: These are less liquid since they represent amounts owed by borrowers, and converting them into cash may take time.
• Physical capital: This includes buildings and machinery, which are not easily converted to cash and are thus the least liquid.

3. Analysis and Detail

• Reserves (1st): Cash and reserves are immediately available for transactions.
• Securities (2nd): While they are relatively liquid, their value can fluctuate based on market conditions.
• Commercial loans (3rd): These require a payment from the borrower and typically take longer to liquidate.
• Physical capital (4th): Selling physical assets can take significant time and effort, making them the least liquid.

4. Verify and Summarize

The ranking of liquidity for these assets holds true under the definitions of liquidity in financial contexts.

Final Answer

The ranking from most to least liquid is as follows:

1. Reserves
2. Securities
3. Commercial loans
4. Physical capital