Liquidity risk is defined as not being able to sell an investment conveniently and at a reasonable price.
Liquidity risk occurs when a company cannot pay its debts by selling its investments at time. This financial risk affects the may only occurs for a while but affects the position of the company a lot.
For a business timely trading of assets to pay debts is necessary. If due to some circumstances, the company fails to process the trades of investments quickly to find money to close the short-term debts, a liquidity risk may occur.
This risk results in losses and may decline the credibility of the company as timely payment of obligations are not done.
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Liquidity risk is defined as the risk of:
a. not being able to sell an investment conveniently and at a reasonable price. b. having inflation erode the purchasing power of your investment. c. having to trade a security in a broad market. d. having declining price levels affect the reinvestment rate of your current income stream.
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