Final answer:
Excess liquidity in the form of foreign financial investment, when not used for long-term capital investment, can lead to missed opportunities for economic growth and make a country vulnerable to capital outflows with negative consequences.
Step-by-step explanation:
The reading material presents a scenario where excess liquidity, especially from foreign financial investment, might not be utilized effectively if it's concentrated in short-term portfolio investments such as government bonds rather than long-term physical capital investment by firms.
A major disadvantage of excess liquidity, in this case, could be loss opportunities where the funds are not being invested in productive assets that could bolster economic growth and sustainability. Moreover, this liquidity could become vulnerable to outflows if investors lose confidence in the country’s economic stability, potentially triggering a cascade of negative financial consequences.