#Liquidity101 Key Points:

High liquidity means an asset can be quickly sold at or near its market price.

Examples: Cash, stocks of major companies, U.S. Treasury bonds.

Low liquidity means it takes longer to sell the asset, and you may have to accept a lower price.

Examples: Real estate, collectibles, privately held businesses.

Types of Liquidity:

1. Market Liquidity – How easily assets are bought or sold in a market.

2. Accounting Liquidity – A company's ability to meet short-term obligations, often measured by ratios like:

Current Ratio = Current Assets / Current Liabilities

Quick Ratio = (Current Assets - Inventory) / Current Liabilities

Why Liquidity Matters:

Investors prefer liquid markets because they can enter and exit positions easily.

Businesses need liquidity to pay bills and manage operations smoothly.

Central banks monitor liquidity to ensure financial stability.