Liquidity refers to the ease and speed at which an asset or investment can be converted into cash without significantly affecting its price. Assets that are highly liquid can be quickly sold or traded in the market with minimal impact on their value. On the other hand, assets with lower liquidity may take more time to sell and could potentially incur a greater loss in value during the process.
In the financial context, cash is considered the most liquid asset as it can be used immediately for transactions. Other highly liquid assets include stocks traded on major exchanges and government bonds. Real estate and certain types of investments, on the other hand, tend to have lower liquidity as they may take longer to sell or convert into cash.