Question

Consider the relative liquidity of the following assets:

Assets:
1. The funds in a savings account.
2. A share in a publicly-traded company.
3. A $10 bill.
4. Your car.
Arrange the assets in order of their liquidity, from most liquid to least liquid.

Answer 1

Liquidity is a measure of how easily an asset can be converted into cash.

In order of most liquid to least, the above are:

1. A $10 Bill

This is already cash so is already as liquid as it will every get.

2. The funds in a savings account.

This can simply be withdrawn from the bank which will then give the customer cash so it is very liquid.

3. A share in a publicly-traded company.

This share would have to be sold first before cash is realized. The share is to a publicly traded company however so this will not be too difficult so this asset is adequately liquid.

4. Your car.

This would need to be sold first and finding a buyer might not be too easy so it is the least liquid of the bunch.