Which scenario illustrates liquidity risk?

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Multiple Choice

Which scenario illustrates liquidity risk?

Liquidity risk is the risk that you can’t meet short‑term cash needs because you can’t convert assets into cash quickly enough without taking a loss. Illiquid equipment fits this risk because it would be hard to sell quickly at a fair price, so you might have to accept a reduced price or wait a long time to raise cash. In contrast, cash in a checking account can be withdrawn easily, inventory sold quickly at full price indicates good liquidity, and receivables collected on time means cash comes in as expected; these scenarios don’t pose liquidity risk because they preserve or provide readily available cash to meet obligations.

Liquidity risk is the risk that you can’t meet short‑term cash needs because you can’t convert assets into cash quickly enough without taking a loss. Illiquid equipment fits this risk because it would be hard to sell quickly at a fair price, so you might have to accept a reduced price or wait a long time to raise cash. In contrast, cash in a checking account can be withdrawn easily, inventory sold quickly at full price indicates good liquidity, and receivables collected on time means cash comes in as expected; these scenarios don’t pose liquidity risk because they preserve or provide readily available cash to meet obligations.

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