Definition of Liquid

What does the term "liquid" mean? What is the definition of the term "liquid"?

As it applies to the world of finance, "liquid" can be used in two different situations.

First, "liquid" can be used to describe how easily an asset can be converted into cash.

For instance, 100 shares of Apple would be a very "liquid" asset, as they are easily convertible to cash. After all, millions of shares of Apple trade on the market every day.

Second, "liquid" can be used to describe whether or not a corporation has enough cash on hand to cover their short-term obligations.

If a corporation DOES have enough money to make its short-term obligations, it is said to be liquid. If it does NOT have enough money to cover its short-term obligations, it is said to be illiquid.

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