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Fast growth in liquidity usually results in Blank risk A. increased B. decreased C. no change in

Question:

Fast growth in liquidity usually results in _____ risk

A. increased

B. decreased

C. no change in

Liquidity Risk:

It is the risk of running out of cash or unable to raise additional funds to meet the financial claims from its liability holders to honor the asset purchase agreement.

Answer and Explanation:

Option B, decreased is correct.

In simple terms, liquidity crunch or risk arises when there is a difficulty of converting assets into liquid form. So, if there is fast growth in liquidity, no such cash crunch would occur, which would reduce the probability of risk.


Learn more about this topic:

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Financial Risk: Types, Examples & Management Methods

from Finance 305: Risk Management

Chapter 1 / Lesson 4
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