What does the term "liquid" refer to in financial contexts?

In financial contexts, the term "liquid" refers to money that is readily available for transactions. Liquid assets are those that can be quickly and easily converted into cash without losing value. This is crucial for businesses and individuals, as having liquid assets means they can readily meet obligations, pay bills, or take advantage of investment opportunities without delay.

For instance, cash in hand and funds in checking accounts are considered highly liquid because they can be used immediately. Conversely, assets like real estate or long-term investments are not considered liquid because converting them to cash can take time and may involve additional costs or risks. Understanding liquidity is vital for financial planning and management, as it impacts cash flow and the ability to fund operations or emergencies.