Liquidity risk
Liquidity is the ability of a firm, company or individual to quickly convert assets to cash or pay debts without incurring major losses. Liquidity risk occurs when said entities: * Can’t meet short-term debt obligations due to an inability to raise enough cash fast enough (AKA funding liquidity risk) * Risk major losses due to an inefficient market or lack of buyers * Can’t buy or sell assets without adversely affecting the price of the asset (such as a major investor selling out) Market liquidity risk can be defined as how easily an asset can be converted to cash in a crunch. The rise rises when, for example, a large trade occurs in an otherwise illiquid market.
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