In financial terms, what does liquidity refer to?

Liquidity in financial terms refers to the ease with which assets can be converted into cash without significantly affecting their market price. This concept is crucial for individuals and businesses alike as it determines how readily available funds can be accessed to meet immediate financial obligations.

Assets like cash or stocks in a well-traded market tend to be highly liquid since they can be quickly sold for cash. Conversely, properties or collectibles may have lower liquidity because they can take a considerable amount of time to sell and may not always fetch their expected market value. Thus, understanding liquidity is essential for effective financial management and planning to ensure that one can meet short-term needs without incurring heavy losses.