liquidity: meaning, definition, pronunciation and examples
C1Formal, Technical
Quick answer
What does “liquidity” mean?
The state of having assets that can be easily sold or exchanged for cash without affecting their price.
Audio
Pronunciation
Definition
Meaning and Definition
The state of having assets that can be easily sold or exchanged for cash without affecting their price; cash or assets readily convertible to cash.
The ease with which an asset can be bought or sold in a market; the availability of funds in an economy or financial system. More broadly, the quality of being clear or flowing like a liquid (in physics/chemistry).
Dialectal Variation
British vs American Usage
Differences
No significant differences in meaning or spelling. Usage is identical in both business and economic contexts.
Connotations
Identical connotations of financial health, stability, and flexibility.
Frequency
Equally frequent and important in finance/economics in both varieties.
Grammar
How to Use “liquidity” in a Sentence
liquidity + (preposition) (e.g., liquidity in the market, liquidity of the asset)verb + liquidity (e.g., boost liquidity, assess liquidity)adjective + liquidity (e.g., ample liquidity, impaired liquidity)Vocabulary
Collocations
Examples
Examples of “liquidity” in a Sentence
verb
British English
- The central bank acted to liquidity the financial system.
- They are trying to liquidity their holdings.
American English
- The Federal Reserve moved to liquidity the market.
- The firm needs to liquidity some assets.
adverb
British English
- The asset traded liquidity throughout the day.
- Funds were withdrawn liquidity.
American English
- The shares were sold liquidity on the exchange.
- The market functioned liquidity.
adjective
British English
- They hold highly liquidity assets in their portfolio.
- The liquidity position of the bank is sound.
American English
- Treasury bills are considered very liquidity instruments.
- The company's liquidity ratios are strong.
Usage
Meaning in Context
Business
We need to improve our liquidity to meet upcoming obligations.
Academic
The study examined the impact of central bank policies on aggregate market liquidity.
Everyday
I keep some savings for liquidity in case of an emergency.
Technical
The bond's liquidity premium reflects its lower trading volume.
Vocabulary
Synonyms of “liquidity”
Strong
Neutral
Weak
Vocabulary
Antonyms of “liquidity”
Watch out
Common Mistakes When Using “liquidity”
- Using 'liquidity' to mean 'profitability' (they are different: a company can be profitable but illiquid).
- Confusing 'liquidity' with 'solvency' (liquidity = short-term cash; solvency = long-term ability to pay debts).
- Pronouncing it as /laɪˈkwɪdɪti/ (incorrect) instead of /lɪˈkwɪdɪti/.
FAQ
Frequently Asked Questions
Liquidity is the short-term ability to convert assets to cash to meet immediate obligations. Solvency is the long-term ability to pay off all debts and obligations. A company can be illiquid (short on cash) but still solvent (assets > liabilities), or vice versa.
Primarily yes in common usage, but it extends to any market (e.g., 'housing market liquidity') meaning how easily something can be bought/sold. In physics, it describes a substance's fluid-like properties.
An economic situation where interest rates are very low and savings rates are high, making monetary policy (like lowering rates) ineffective at stimulating spending and investment.
Yes, informally. If someone says 'I have low liquidity right now,' they mean they have little cash or easily accessible funds, even if they own valuable illiquid assets like a house.
The state of having assets that can be easily sold or exchanged for cash without affecting their price.
Liquidity is usually formal, technical in register.
Liquidity: in British English it is pronounced /lɪˈkwɪdɪti/, and in American English it is pronounced /lɪˈkwɪdəti/. Tap the audio buttons above to hear it.
Phrases
Idioms & Phrases
- “caught in a liquidity trap”
- “drowning in liquidity (excess cash)”
Learning
Memory Aids
Mnemonic
LIQUIDity – think of cash as the most 'liquid' asset, flowing easily like water. If an asset is 'liquid,' it can flow into cash quickly.
Conceptual Metaphor
MONEY IS A LIQUID (e.g., cash flow, inject money, drain reserves, flooded with cash, frozen assets).
Practice
Quiz
What is the primary meaning of 'liquidity' in finance?