Final answer:
A 'petty cash' fund is a small amount of liquid cash kept by a business to make minor purchases. The concept of liquidity in financial terms refers to how quickly an asset can be converted into cash or used to buy goods and services.
Step-by-step explanation:
The small amount of cash kept on hand to pay for minor purchases is commonly referred to as a petty cash fund. This liquid financial asset is used for transactions that are not convenient to pay for with a check or credit card. Pett cash funds serve as a way for businesses to improve efficiency for small transactions and maintain financial control while also allowing for greater convenience.
Liquidity is a vital concept when discussing money and financial assets. Liquidity refers to the ease with which an asset can be converted into cash or used to purchase goods and services. Cash on hand, like petty cash, is highly liquid and can be quickly and easily used without the need to withdraw from a bank or use an ATM.
Banks benefit from the ability to sell loans quickly after they're made, thus not requiring significant funds on hand. This practice enables them to turn the loan into a security that can be sold, which is aligned with the concept of liquidity in financial assets.