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)

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