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liquidity is very important. But, there must be a cost to maintaining liquidity. How do you...

liquidity is very important. But, there must be a cost to maintaining liquidity. How do you measure the cost of maintaining adequate liquidity? Remember the cost may be in terms of opportunities lost! What is the cost of becoming illiquid?

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* Any doubt please comment, have answered the question from a business point of view since nothing is mentioned.

Maintaining liquidity is very important for a corporate organization in order to meet day to day transactions, as a precautionary motive to meet unforseen expenditure and short term funds to take investment opportunities. The cost of maintaining liquidity is the opportunity cost between having money balances and the interest that can be earned by investing the excess cash in interest bearing debt investments. Cost of illiquidity can be in the form of bankruptcy and insolvency. Illiquidity can lead to erosion of shareholder wealth and the company may have to bear extra costs to repay the debt and meet other obligations.

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