#Liquidity101

Here's a concise overview of liquidity in finance (100 words):

**Liquidity** refers to how easily an asset can be converted to cash without significantly affecting its market price. The most liquid asset is **cash itself**, followed by instruments like foreign currency and government bonds.

There are two main types:

1. **Market liquidity** – How quickly assets (like stocks) can be bought/sold in markets. High-volume stocks (e.g., Ford) are more liquid than real estate or art.

2. **Accounting liquidity** – A company’s ability to pay short-term debts using liquid assets (cash, receivables).

**Measured using ratios**:

- Current ratio (all assets vs. debts)

- Quick ratio (excludes inventory)

- Cash ratio (cash only vs. debts).

Poor liquidity risks insolvency; excess liquidity may indicate inefficient capital use.