What does "liquidity" refer to in finance?

Liquidity in finance specifically refers to the ease and speed with which assets can be converted into cash without significantly affecting their price. This concept is crucial for individuals and businesses, as having liquid assets readily available allows them to meet immediate financial obligations or seize opportunities. For example, cash itself is the most liquid asset, while real estate is generally considered illiquid, as it may take time to sell and convert into cash.

In the context of the available choices, the option indicating the ease of converting assets to cash accurately defines liquidity. Understanding liquidity is essential for managing cash flow and making informed financial decisions, particularly in investment strategies and risk management.