What term describes the ease of converting an asset into cash without impacting its market price?

The term that describes the ease of converting an asset into cash without impacting its market price is liquidity. This concept is crucial in finance and investing, as it determines how quickly an asset can be sold and turned into cash while maintaining its fair market value. Highly liquid assets, like cash or stocks of large companies, can generally be sold quickly without significant loss in value. Conversely, assets that are less liquid, such as real estate or collectibles, may take longer to sell and could require a discount from the market price to facilitate a quick sale.

Marketability, while related, specifically refers to the activity or volume of trading in a particular asset. It encompasses not just the conversion of the asset into cash but also how easy it is to find buyers for it. Thus, while liquid assets are typically also marketable, the primary focus of liquidity is on the speed and price stability of asset conversion to cash.

Understanding liquidity is essential for both businesses and investors, as it helps inform decisions regarding cash flow management, investment strategies, and overall financial health.