What does the term “liquidity gap” signify?

The term “liquidity gap” refers specifically to a situation where a business or individual faces a shortfall in cash inflows compared to cash outflows. This means that the available liquid assets are insufficient to meet the immediate financial obligations or outgoings. A liquidity gap can arise in scenarios where cash is needed to cover expenses, payments, or other commitments, yet the cash available is not adequate.

In contrast, the other options focus on different concepts related to finance and asset evaluation. The market value of an asset pertains to its current worth in the marketplace, which does not directly relate to liquidity management. The difference in liquidity across asset classes speaks to how easily different types of assets can be converted to cash, but it does not address the timing and sufficiency of cash flows. Lastly, the variance in investment returns relates to the performance of investments over time and is not connected to immediate cash flow needs. Understanding liquidity gaps is crucial for effective cash flow management and ensuring that financial obligations can be met promptly.