In a derivative, liquidity risk exists 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 not repay a loan. Liquidity risk can exist independently of credit risk, but credit risk always implies liquidity risk. This is because if a borrower defaults on a loan, the lender may not be able to sell the collateral quickly enough to cover the loss.

In a Derivative, Liquidity Risk Exists Only If Credit Risk