Meaning & use
liquidity risk
Last updated
Meanings
noununcountablebusinessfinance
The danger that a person or company cannot sell assets quickly enough, or raise cash quickly enough, to pay what it owes on time.
Grammar: Used as a mass noun with no article when you talk about the idea in general: 'Liquidity risk worries regulators.'
Patterns
- liquidity risk for someone
- reduce liquidity risk
- a liquidity risk to something
The bank holds plenty of government bonds to keep its liquidity risk low.
During the crisis, small lenders faced serious liquidity risk because nobody wanted to buy their loans.
Analysts warned that the fund's liquidity risk had grown as investors asked for their money back.
nouncountablebusinessfinance
A specific situation in which a particular asset or market may be hard to turn into cash at a fair price.
Grammar: Countable when you mean one particular case among several: 'one of the main liquidity risks'.
Patterns
- a liquidity risk in something
- identify liquidity risks
- manage liquidity risks
Holding only property is a liquidity risk if you suddenly need money.
The report lists three liquidity risks: thin trading, long settlement times, and few buyers.
Traders treat tiny markets in rare coins as an obvious liquidity risk.
Common combinations
- liquidity risk management
- Good liquidity risk management kept the firm solvent through the downturn.
- face liquidity risk
- Pension funds face liquidity risk when many members retire at once.
- reduce liquidity risk
- Keeping some cash in reserve reduces liquidity risk.
- liquidity risk exposure
- The regulator asked about the bank's liquidity risk exposure.
- manage liquidity risk
- Treasurers manage liquidity risk by spreading money across several accounts.
Synonyms and how they differ
- funding risk
- Funding risk focuses on the danger of not being able to borrow or raise money, while liquidity risk is broader and also covers being unable to sell assets quickly.
- cash-flow risk
- Cash-flow risk is about the timing of money coming in and going out; liquidity risk is about whether assets can be turned into cash fast enough.
Opposites
Word family
Commonly confused: liquidity risk or liquidity? liquidity risk or solvency risk?
liquidity risk vs liquidity
Liquidity is simply the amount of cash or easily sold assets you have; liquidity risk is the danger that this amount is not enough when you need it.
liquidity risk vs solvency risk
Solvency risk concerns whether total assets cover total debts at all, while liquidity risk concerns whether you can pay a debt on the day it is due.
Practice
Which sentence uses 'liquidity risk' correctly?
Choose one answer.
Liquidity risk is about being unable to turn assets into cash or raise cash to pay obligations, so a buyer failing to pay fits. Hiring staff, changing a logo, or opening an office does not directly affect the ability to meet cash obligations, so those options do not fit the meaning.
Make it your own
Write a sentence using “liquidity risk”, then check it and compare it with the examples above.