The measure of Liquidity is determined by how quickly an asset or investment can be sold, redeemed or converted into cash. The faster this can happen, the more liquidity the asset has. For example, compare the amount of time it would take to sell your home versus withdrawing money from your savings account. Of the two, your savings account is the more liquid asset.
Liquid investments are often traded on exchanges such as the stock market. Banks and other financial institutions were able to securitize formerly illiquid investments, such as mortgages, into liquid ones by packaging them into mortgage-backed securities. These investments turned out to be toxic when mortgage holders began to default. SeeMortgage-backed Security.
Liquidity risk: The risk that a bank will not have sufficient cash or liquid assets to meet borrower and depositor demand which can result in a run on the banks.
(SeeBank Run) Liquidity squeeze: When an entity lacks the financial capital to pay its obligations in a timely manner, it is said to be suffering a liquidity squeeze. Currently, many nations are pumping billions into their banks to protect them from such a squeeze. | | 
