Short-term debt has a greater risk of illiquidity than long-term debt because it must be rolled over more frequently and its use creates more uncertainty concerning future interest rates.

Question

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Short-term debt typically has maturities of less than a year, and need to be rolled over frequently, sometimes as often as every few weeks. This creates greater risk of illiquidity as it may be difficult to find new lenders willing to provide funding. Additionally, the use of short-term debt creates greater uncertainty concerning future interest rates, as it is subject to more frequent changes in market conditions compared to long-term debt. Overall, short-term debt carries a higher risk of illiquidity than long-term debt.

Short-Term Debt Has a Greater Risk of Illiquidity Than Long-Term