What Is Liquidity?
Liquidity is a term which refers 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
Some examples of illiquid assets are:
- Money in investment funds
- An asset for which there is no market (i.e. CDOs in 2008)