Liquidity
Liquidity means how simply and quickly an asset or security can be converted to cash without negatively affecting its market price. High liquidity means an asset can be quickly turned into cash without impacting its value, while low liquidity means an asset can’t easily be converted to cash without affecting its value. Money is the most liquid of assets, while tangible items - like houses - are less liquid. Investors value liquidity because it provides flexibility and reduces the risk of significant price fluctuations. There are two main types of liquidity:
- Market liquidity: Where assets can be bought and sold at stable, transparent prices
- Accounting liquidity: Assesses whether there’s enough available cash to pay off debts
Understanding an asset’s liquidity - such as company stock - is important for making informed investment decisions.
We acknowledge and thank the FMA, Dr Karena Kelly and Brook Taurua Grant, the RBNZ and the Māori Dictionary for their research which helped us with te Reo Māori kupu for this glossary.
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