The Role of Liquidity in Exchange Valuation.

Abstract The article focuses on the role of liquidity in exchange valuation. The method of assigning values to goods at the event of exchange under the historical cost system has been described. The historical cost system as a given and attempt to generalize the exchange valuation rules of that system has been taken. An exchange is a two-way flow of goods. An acquisition is accompanied by a sacrifice. Thus, an exchange has a double effect, an increment in one good and a decrement in another, which requires a double entry on the books of account. The operations necessary to make the entry may be analysed in general terms. The entry is meant to reflect the underlying flow of goods. An exchange is an increment in one good accompanied by a decrement in another good. Neither of these goods necessarily has a value attached, instead value is assigned to them. In most cases this assignation of a value is done intuitively, that is without an explicit consideration of the process. The simplest cases are cash exchanges in which the value of cash is set equal to the quantity of cash.