#Liquidity101 Liquidity refers to the ease and speed with which an asset can be converted into cash without a significant loss of its value. Cash is the most liquid asset. In a business context, liquidity is crucial for a company to meet its short-term obligations, such as paying salaries or bills.

In financial markets, liquidity is reflected in the ease of buying or selling an asset. A liquid market is characterized by a high trading volume and a narrow bid-ask spread, allowing transactions to be executed efficiently and at fair prices. Low liquidity can lead to higher transaction costs and difficulties in trading. It is a key indicator of a company's financial health and the efficiency of a market.