Liquid assets are among the most basic form of financial resources used by consumers,
suppliers, and investors. Essentially, a liquid asset is cash or any type of negotiable asset that can be
converted quickly and easily into cash. In many instances, financial experts choose to classify liquid
assets as any asset that can be converted into cash within a period of twenty days.
Currency and coin are the two most obvious forms of liquid assets. Immediately recognized as legal
tender for purchases and to settle outstanding debts, currency remains the single most common of all
liquid assets that are used on a consistent basis by retail customers. The circulation of currency and
coins are controlled by the financial arm of the country in question, often a treasury or revenue
department of the central government.
Along with currency, there are several other common examples of liquid assets that are used both in
business and in the private sector. Money that is deposited into a savings or checking account are
considered to be liquid assets, since it is possible to immediately access the funds and issue them in
order to settle debts. With the advent of the debit card, the consumer has even greater access to
immediate liquid assets of this type than ever before.
The standard savings account is not the only form of investment that can be properly classified as a
liquid asset. Money market fund shares, bonds, mutual funds, and the cash value of a life insurance
policy are all examples of interest bearing investments that can undergo liquidation and provide quick
cash when necessary. While the actual market liquidity of each asset may vary, the key is that the
process of converting or selling off the asset to raise money will be simple and can be accomplished in
a short period of time.
Other forms of the cash asset may apply in different business and personal finance situations.
Mortgages are sometimes considered a liquid asset. The final settlement awarded by a court for
damages in a lawsuit are considered to be liquid assets, depending on the terms of payment specified by
the court. Tax refunds and the balances of trust funds are often also included in the working definition
for liquid assets. When determining if a particular asset is in fact a liquid one, keep in mind that the
asset must be one that can be sold for cash quickly and realize a sale value that is at least equal to the
market value of the asset.