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liquidity

lih-KWID-ih-tee /lɪˈkwɪd.ə.ti/

nounB2GMATGREIELTS

formalbusiness

The degree to which an asset can be quickly bought or sold in the market without affecting its price, or the availability of cash.

Refers specifically to ease of conversion into cash, not total wealth or assets overall.

The story behind the word. From Latin liquidus, meaning fluid or clear. In accounting, cash flows smoothly like water, whereas real estate is frozen like ice. Thus, fast money became known as liquid.

Word relationships

solvency: Solvency is having assets exceeding liabilities long-term, while liquidity is immediate cash availability.
cash flow: Cash flow measures movement of money over time, whereas liquidity is current cash availability.

illiquidity: Illiquidity means assets cannot be quickly converted to cash without significant loss.

Commonly confused with

solvency: A company can be solvent (owning valuable property) but illiquid (unable to pay today's payroll).

Word family

liquid (adjective): Easily convertible into cash.
liquidate (verb): To convert assets into cash or settle debts.

Collocations

provide liquidity
liquidity crisis
market liquidity
inject liquidity

Idioms & expressions

dry up liquidity

Example sentences

"Central banks injected massive liquidity into the banking system to prevent financial collapse during the panic." Central banking policy
"The firm faced a liquidity crisis when short-term debts matured faster than its receivables came in." Financial reporting

Memory hook

Think of LIQUID water flowing quickly; liquid money flows instantly into your hand as cash. Flowing cash equals instant spending power.

When not to use

Do not use to describe physical fluids unless writing in a scientific fluid dynamics context.

Fun facts

Cash is the ultimate liquid asset because its conversion time to cash is zero seconds.