Liquidity

Editor

What is liquidity?

In economics, liquidity refers to the amount of cash, cash equivalents or other assets that can be converted into cash without difficulty. Money, or cash, is the most liquid asset out there. It can be easily exchanged for goods and services with no loss of value.

In market terms, market liquidity is the ease with which assets are bought and sold without volatile shifts in price. For example, a country’s real estate market liquidity refers to the degree with which properties can be bought and sold at stable prices. Big stockmarkets, such as those measured by the FTSE 100 or Dow Jones Industrial Average indices, are considered very liquid as millions of shares are traded daily, whereas for smaller stocks it might be difficult sometimes to find buyers without cutting the price and taking heavy losses.

A given asset will be more or less liquid depending on its ability to be sold quickly without a significant reduction of its price. Business liquidity refers to the amount of liquid assets and the ability of a business to meet its payment obligations.

When an asset is exchanged for a more liquid one, the process is called liquidation, e.g. selling a car for cash.

Accounting liquidity refers to the ability of a person, country or a company to pay off debts and liabilities as they come due.

Related Articles:

 

Category: Financial Glossary

From time to time we may tell you about regulated products issued by Southbank Investment Research Limited. With these products your capital is at risk. You can lose some or all of your investment, so never risk more than you can afford to lose. Seek independent advice if you are unsure of the suitability of any investment. Southbank Investment Research Limited is authorised and regulated by the Financial Conduct Authority. FCA No 706697. https://register.fca.org.uk/.

© 2018 Southbank Investment Research Ltd. Registered in England and Wales No 9539630. VAT No GB629 7287 94.
Registered Office: 2nd Floor, Crowne House, 56-58 Southwark Street, London, SE1 1UN.

Terms and conditions | Privacy Policy | Cookie Policy | FAQ | Contact Us | Top ↑