Final answer:
Liquidity refers to the ease and speed of converting assets into cash with minimal loss in value. Cash is a highly liquid asset, while funds in a savings account are less so. The correct dimension of liquidity is A. 'quickly convert assets into cash without significant loss in value'.
Step-by-step explanation:
The concept of liquidity is critical in both personal finance and the broader world of economics. Liquidity has two dimensions: the ability to quickly convert assets to cash without significant loss in value, and the potential to maximize value during the conversion process. However, from the options provided, the definition of liquidity that best fits is to 'quickly convert assets into cash without a significant loss in value.' This encapsulates the essence of liquidity, which emphasizes the ease and speed of converting assets into cash with minimal impact on the asset's value.
For instance, cash in hand is considered to be highly liquid because it can be used immediately to purchase goods and services. In contrast, funds in a savings account would be less liquid because they require additional steps, such as visiting the bank or an ATM, to access them. In the world of investments, assets traded on secondary markets are usually liquid, as they can be sold fairly quickly to other investors without a substantial loss.
Hence, the correct option that defines the two dimensions of liquidity is 'a. quickly convert assets into cash without significant loss in value'.