Liquidity is a financial concept that refers to the ability to convert assets into cash.It is crucial for a company to have good liquidity in order to pay its bills in a timely manner. In order to fulfil payment obligations on an ongoing basis, a company must ensure that total cash flow exceeds total liabilities, ensuring a minimum level of liquidity.Managing liquidity is seen as one of the core functions of a company's treasury department. Since the 2007-09 global financial crisis, maintaining good levels of liquidity has been an increasing challenge for many companies due to a variety of factors, including the marked decrease in bank credit globally.A company that maintains a minimum level of liquidity is said to be solvent.Foreign exchange risk is a major threat to a company's liquidity. Companies with business lines in foreign markets may experience an adverse impact on their cash flow if they are not able to protect their margins, which might end up eroding their liquidity ratio.