RWA

RWA, or Risk Weighted Asset is used in the financial markets a measure of liquidity.

To calculate RWA the nominal, or stated value of an asset - for example, real estate, stocks or bonds - is multipled by a real number which is always less than one.

This number is intended to approximate how quickly and easily this asset can be converted to cash.

Consider an individual who wishes to borrow money from a bank or other such institution, and is asked to provide some form of collateral.

Perhaps she has two assets that would be acceptable as collateral - a plot of land or 1,000 shares of IBM stock. Consider for the sake of illustration that each asset is worth $200,000.

The bank may consider the land - in risk weighthed asset terms - as only worth $100,000 as collateral, or $200,000 * 0.5.

By the same token the bank may consider the IBM stock to be worth - once again in risk weighted asset terms - as $180,000 as collateral, or $200,000 * 0.9.

Each of these calculations are intended to express numerically how quickly and easily the asset can be converted to cash.

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