What does 'liquidity' refer to in financial markets?

Liquidity in financial markets primarily refers to how quickly an asset can be converted into cash without significantly affecting its market price. High liquidity indicates that there are many buyers and sellers in the market, enabling assets to be sold swiftly and with minimal price fluctuations. For example, cash itself is considered the most liquid asset, while real estate typically has lower liquidity due to the time and effort required to sell it.

The other options do touch on different aspects of financial markets but do not encapsulate the full definition of liquidity. The ability to buy shares without affecting the market price relates more to market depth and order types. The amount of cash a company holds is a component of its liquidity but does not define the broader concept as it pertains to all types of assets. Market capitalization pertains to the overall value of a company in the stock market, and while it may relate to liquidity, it does not specifically define it either. Therefore, the reason option B is correct is that it accurately describes liquidity as the speed of conversion of assets into cash.