Legal Definitions - liquidity

Definition: Liquidity refers to the ability of an asset to be easily converted into cash without causing significant price changes. It is the measure of how quickly and easily an asset can be bought or sold in the market.

Example: A savings account is a highly liquid asset because the money can be withdrawn at any time without penalty. On the other hand, real estate is not as liquid because it can take months or even years to sell a property and convert it into cash.

Another example of liquidity is the stock market. Stocks that are traded frequently and have a large number of shares available are considered to be highly liquid. This means that investors can buy or sell these stocks without significantly affecting the market price.

Overall, liquidity is an important concept in finance because it affects the ease and cost of buying and selling assets. Assets that are highly liquid are generally more desirable because they can be easily converted into cash when needed.