Q.Write a short note on: Liquidity

Liquidity is the quality of an asset of being easily and quickly convertible into cash without loss of value. Money (cash) is perfectly liquid; near-money assets like bank deposits are highly liquid; and assets like land and buildings are the least liquid.

Meaning

Liquidity refers to the degree to which an asset can be converted into cash quickly and without loss of value. An asset is said to be liquid if it can be turned into money easily, speedily and at its full worth.

Explanation

Assets differ in their degree of liquidity:

• Cash (currency and coins) is the most liquid asset, because it is money itself and is accepted everywhere immediately.
• Demand deposits and savings deposits in banks are highly liquid, as they can be withdrawn quickly; they are called near money.
• Shares, bonds and fixed deposits are less liquid, because converting them into cash takes some time and may involve a cost.
• Land, buildings and machinery are the least liquid assets, since selling them takes a long time and may involve loss. …