Liquidity

PracticalTechnicaleconomicssystems

Etymology

From Latin liquidus, "flowing, fluid" (from liquere, "to be liquid"). Finance borrowed the image directly: cash "flows" freely, while assets like property are "frozen" and slow to move. Something highly liquid pours easily into spendable money.

  1. noun · /li-KWID-ih-tee/

    How easily an asset can be turned into cash without losing much of its value.

    What it names

    It captures the difference between being wealthy on paper and being able to actually pay a bill this week — a house is worth a lot but cannot buy groceries today.

    Example

    The startup was valued in the millions but had a liquidity problem — almost no cash to cover payroll.

    Related idea

    Solvency asks whether you own more than you owe overall; liquidity asks whether you can pay right now.

See also

ArbitrageCash flowFungibilityInsolvencyQuantitative easingSolvencyVolatility