Liquidity is essential for the functioning of financial markets from "summary" of The Economics of Money, Banking and Financial Markets, eBook, Global Edition by Frederic S. Mishkin
The ability to buy or sell financial assets quickly and without significantly affecting their prices is known as liquidity. Liquidity is crucial for the smooth operation of financial markets. Without sufficient liquidity, markets can become illiquid, making it difficult for investors to buy or sell assets at fair prices. In illiquid markets, investors may be forced to accept lower prices to sell assets quickly or pay higher prices to buy assets promptly. This can lead to price volatility and reduce market efficiency. Liquidity allows investors to trade assets easily, which helps ensure that prices reflect all available information and that markets are more stable. Moreover, liquidity is essential for the proper functioning of financial...
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