Liquid Assets Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Liquid Assets, written in plain English, along with examples of how it is used.

What is Liquid Assets?

History and Meaning of Liquid Assets

The term "liquid assets" traces its roots to the banking industry of the 1800s. It refers to assets that can be easily converted into cash without losing their value. Liquid assets are crucial for financial institutions to maintain as they provide necessary funds for loans and withdrawals. Some examples of these assets are stocks, bonds, cash, and other short-term investments.

Examples of Liquid Assets

1. A person with high liquidity holds significant cash and cash equivalents in their savings account, making it easier for them to pay unexpected expenses or purchases.

2. In the event of an economic downturn, companies may sell their liquid assets to generate cash to cover expenses.

3. When applying for a loan, lenders may consider a borrower's liquid assets, such as their savings account, as an indication of financial stability.

Legal Terms Similar to Liquid Assets

1. Current Assets: These are assets that a company expects to convert into cash within one year. Current assets include cash, accounts receivable, inventory, and other short-term investments.

2. Marketable Securities: Securities that can be easily purchased or sold in the market are called marketable securities. These are considered liquid assets because they can quickly be converted into cash.

3. Cash Equivalents: Cash equivalents are highly liquid, short-term investments that can be readily converted to cash. Some examples include Treasury bills, commercial papers, and money market funds.