In a derivative, a party cannot have liquidity risk and credit risk simultaneously.

Question

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A derivative is a financial instrument that derives its value from an underlying asset. 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 counterparty to a financial contract will default on its obligations. In a derivative, a party cannot have liquidity risk and credit risk simultaneously because the underlying asset is always available to meet the financial obligation.

In a Derivative, a Party Cannot Have Liquidity Risk and Credit