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Something Interesting to Read April 2017

michalinaobrien
Apr 12 2017 at 06:49
22 posts
Fungibility is different from liquidity. A product is liquid if it can be easily exchanged for money or another different product. On the other hand, a product is fungible if one unit of it is substantially equivalent to another unit of the same product of the same quality at the same time and place.

For example, different issues of a government bond which may have been issued at different times are fungible with one another if they carry precisely the same rights and any of them is equally acceptable in settlement of a trade.

Another example is diamonds. Diamonds are not perfectly fungible because diamonds’ varying cuts, colors, grades, and sizes make it difficult to find many diamonds with the same cut, color, grade and size. Fungibility does not imply liquidity, and vice versa. Diamonds can be readily bought and sold, as the trade is liquid, but individual diamonds, being unique, are not interchangeable.

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