NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Evaluating the Financial Position of Clients
A client has liquid assets of Rs 3,00,000 and monthly non-discretionary expenses of Rs 50,000. What is her liquidity ratio (liquid assets to monthly non-discretionary cash outflows)?
The liquidity ratio divides liquid assets by monthly non-discretionary outflows. Rs 3,00,000 divided by Rs 50,000 equals 6 months, meaning the client can cover six months of essential expenses from liquid resources without selling long-term investments.
- A16.7 months
- B0.17 months
- C6 monthsCorrect
- D12 months
Explanation
Liquidity ratio = liquid assets / monthly non-discretionary expenses = 3,00,000 / 50,000 = 6 months. Dividing the other way gives 0.17, a common inversion error. The ratio shows how many months expenses are covered.
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