Which risk refers to the ease with which an asset can be sold without affecting its price?

• A. Inflation Risk
• B. Credit Risk
• C. Market Risk
• D. Liquidity Risk

Answer: (D)

Liquidity is about how easily an asset can be bought or sold in the market without causing a significant price change. The risk in question focuses on selling quickly and at a fair price, which is exactly what liquidity risk captures. When an asset is highly liquid, you can enter or exit positions with little price impact; when it’s illiquid, selling rapidly may require accepting a much lower price or waiting a long time for a buyer.

Inflation risk relates to the eroding value of money over time, not to how easily an asset can be sold. Credit risk deals with the possibility that a borrower defaults. Market risk involves broad price movements due to overall market factors, not the ease of selling. So the term that best describes the ability to sell an asset without affecting its price is liquidity risk.