Is liquidity the ease or difficulty of converting assets to money?

➼You heard the term “Cash Is King”, this makes money the yardstick/benchmark for liquidity. Money has perfect liquidity it is basically a 1:1 ratio. Money is the medium of exchange for the economy; money can be used to purchase or acquire any commodity, any good or service, available. (Assuming no other powers are involved such as politics/war/and other unforeseeable forces).mation, half truths, misleading information; we are told about food shortages, car shortages, labour shortages and are witnessing the baby formula shortage.

➼”As a general rule financial assets tend to have greater liquidity than physical assets. Financial assets, including bank accounts, stock certificates, government securities, and other legal claims, tend to be relatively liquid. This results, in part, because most have active, established markets and transaction cost is low relative to the value of the asset. “
 
➼In other words, you can withdraw $500 of cash from your savings account at the ATM machine with no effort or expense; sell a stock or an old artwork for cash relatively easy online.
 
➼”Physical assets, including real estate, housing, durable consumer goods, and capital equipment, tend to have relatively less liquidity. Markets that exist for these goods are usually less active and transaction cost tends to be greater. Because physical assets are often more specialized, better suited for some uses than others, finding the specific buyer wanting the asset and willing to pay the “going market price” is more challenging.”
 
➼Accounting liquidity measures the ease with which an individual or company can meet their financial obligations with the liquid assets available to them—the ability to pay off debts as they come due.
 
➼In the example above of the old artwork that we can assume at $2000 value, the assets are relatively illiquid as the market for old artwork now is a little slow and would probably not be worth its full value of $2,000 today, tomorrow on the other hand it may yield $5,000.
 
So, when it comes to selling or disposing of your assets regardless of what they are, always ask yourself Can I do without it? Do I really need this? Do I really want this? Do I really have to do this?

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