What is the definition of Liquidity

Liquidity is a term which refers to the ease and speed with which an asset can be converted into cash. A liquid asset will be exchangeable for cash very quickly with no loss in value, whilst an illiquid asset will usually take time and may even lose value as a result.

Some examples of liquid assets are:

• Savings Accounts
• Stock
• Options

Some examples of illiquid assets are:

• Property
• Money in investment funds
• An asset for which there is no market (i.e. CDOs in 2008)