What does liquidity mean?

Liquidity refers to the amount of money an individual or corporation has on hand and the ability to quickly convert assets into cash. The higher the liquidity, the easier it is to meet financial obligations, whether you're a business or a human being. If a person has more savings than they do debt, it means they are more financially liquid.

What are the two types of liquidity?

Cash is the most liquid of assets, while tangible items are less liquid. The two main types of liquidity are market liquidity and accounting liquidity. Current, quick, and cash ratios are most commonly used to measure liquidity. Why Is Liquidity Important?

What does high market liquidity mean?

High market liquidity means that there is a high supply and a high demand for an asset and that there will always be sellers and buyers for that asset. If someone wants to sell an asset yet there is no one to buy it, then it cannot be liquid. Liquidity is not the same thing as profitability.

What does restricted liquidity mean?

Constrained liquidity is the opposite of a liquidity glut. It means there isn't a lot of capital available, or that it's expensive, usually as a result of high-interest rates. It can also happen when banks and other lenders are hesitant about making loans. Banks become risk-averse when they already have a lot of bad loans on their books.