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16 November, 01:54

What is liquidity risk?

(A) The risk of a decline in the overall stock or bond market

(B) The risk of unfavorable business conditions caused by weakness in the overall economy

(C) The risk of receiving a lower than market price upon sale of your holding

(D) The risk of an unexpected rise in prices that reduces purchasing power

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Answers (1)
  1. 16 November, 03:50
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    Answer: Liquidity risk is " (C) The risk of receiving a lower than market price upon sale of your holding ".

    Explanation: In the world of investments, when an asset is low liquid means that it is not traded frequently. In the absence of a liquid market, there will be very few buyers willing to acquire that asset. So we probably have to lower the price of the asset in order to attract interested buyers and sell them the asset. In the end, we are likely to have to sell that asset below the market price.
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