Liquidity Risk is the risk that an individual or business cannot quickly convert assets into cash or meet short-term financial obligations without incurring significant loss.
Liquidity Risk occurs when there is a shortage of cash or liquid assets to meet immediate needs. It can affect both individuals and financial institutions, especially during financial stress or market disruptions.
Banks manage liquidity risk under guidelines from the Reserve Bank of India to ensure financial stability.
"If a company owns property but cannot sell it quickly to pay urgent bills, it faces liquidity risk."