What does illiquidity refer to in financial terms?

Illiquidity in financial terms primarily refers to the relative difficulty of converting an asset into cash without a significant loss in value. An illiquid asset is one that cannot be easily sold or exchanged for cash quickly, and if an owner needs to sell it urgently, they may have to accept a lower price than the asset's actual worth. This characteristic is crucial for investors to understand, as it affects their ability to access cash quickly when needed and impacts the overall risk associated with holding specific assets.

Other options do not capture the essence of illiquidity. The ability to generate income refers to a different concept related to cash flow and profitability. A bond's yield over time speaks to the performance of debt securities and their return on investment rather than their liquidity status. The process of securing a loan is a financing activity that does not describe an asset's marketability or the ease of converting it into cash. Hence, option B accurately reflects the definition of illiquidity within the financial framework.