Liquidity is a financial term that refers to the ease with which an asset or security can be converted into cash without significant loss of value. In general, assets that are considered highly liquid can be sold quickly and easily, often with minimal transaction costs. Examples of highly liquid assets include cash, stocks, and bonds traded on major exchanges, as well as money market funds and other short-term investments. On the other hand, assets that are illiquid may be difficult to sell or may require significant time and expense to convert to cash. Examples of illiquid assets include real estate, private equity investments, and certain types of alternative investments. Liquidity is important for investors and financial institutions because it allows them to meet their cash flow needs and manage risk more effectively. High levels of liquidity can provide a cushion against unexpected events or market volatility, while low levels of liquidity can increase the risk of financial distress or insolvency. In addition to assessing the liquidity of individual assets or securities, investors and financial institutions may also consider the overall liquidity of the markets in which they operate, as well as the availability of funding sources and credit facilities that can be used to manage liquidity risk.