The risk that a financial institution may be forced to borrow emergency funds excessive cost to cover its immediate cash needs is known as:
A)credit risk
B)liquidity risk
C)market risk
D)interest-rate risk
E)None of the options is correct

Question

Quizplus · Accepted Answer

Liquidity risk refers to the risk of an institution being unable to meet its cash needs, either because it cannot sell assets quickly enough or because borrowing costs are prohibitively high. This can lead to an inability to fund new loans or meet other obligations, causing significant financial losses.

The Risk That a Financial Institution May Be Forced to Borrow