FinTech Glossary

What Is Liquidity

Liquidity refers to the ability of an individual or business to meet short-term financial obligations using cash or assets that can be quickly converted into cash without significant loss of value.

How Liquidity Works

Liquidity depends on the balance between incoming cash and short-term obligations.

Assets such as cash, bank balances, and marketable securities are considered highly liquid, while fixed assets are less liquid.

Businesses monitor liquidity to ensure they can operate smoothly without relying on emergency funding.

Types of Liquidity

Liquidity is commonly assessed in different ways:

1. Cash liquidity refers to available cash and bank balances
2. Asset liquidity reflects how quickly assets can be converted into cash
3. Market liquidity indicates how easily assets can be sold in the market

Each type provides a different perspective on financial readiness.