Define liquidity and why money is said to be the most liquid of all assets. Solution Liquidity is defined as the speed with which one asset can be converted into another asset that can be instantly used as cash (for transaction purposes). In this sense, money is the most liquid asset. Cash is already an asset that can be exchanged for any purpose, but other components of money, for example checking deposits, savings, certificate of deposits etc, can be concerted into cash at fastest possible time, therefore they are considered most liquid of all assets. In contrast we can consider a farm-house which is a salable asset, but selling it and getting cash for it takes much time, so it has very low liquidity..