DECA Marketing Cluster Practice Exam

Which of the following is considered a liquid asset?

1. Real Estate

2. Stocks

3. Inventory

4. Machinery

The correct answer is: Stocks

In finance, a liquid asset is an asset that can be quickly converted into cash without significantly affecting its value. Stocks are categorized as liquid assets because they can be sold on stock exchanges relatively quickly and easily, allowing the holder to access cash almost immediately. The market for stocks is usually very active, which supports quick transactions at transparent prices, contributing to their liquidity. In contrast, real estate is not considered liquid because it typically takes a longer time to sell and involves additional costs and processes, such as agent fees and closing costs. Inventory represents goods that a company holds for sale, making it less liquid compared to stocks, as selling inventory may not happen immediately and could depend on market demand. Machinery also ranks low on liquidity due to the complexities involved in selling equipment, including finding buyers and negotiating prices. Thus, stocks stand out as the option that fits the definition of a liquid asset best.