In a derivative, liquidity risk can exist only if credit risk exists.

Question

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Liquidity risk is the risk that an asset cannot be sold quickly enough to meet a financial obligation. Credit risk is the risk that a borrower will default on a loan. In a derivative, liquidity risk can exist only if credit risk exists because the value of the derivative depends on the value of the underlying asset. If the underlying asset cannot be sold quickly enough to meet a financial obligation, then the derivative will also be difficult to sell.

In a Derivative, Liquidity Risk Can Exist Only If Credit