The definition of liquidation, which is a similar looking word, shows that this is the endgame for a business, where everything is sold off in order to release money to pay off as many of the debts as possible.

So how does it relate to liquidity? Well, they are related in that liquidity is a measure of how well an organisation can meet its current financial requirements. For instance, if a bank has good liquidity then if its customers want to take out their money, then there is the money in place to let this happen.

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