The risk that the firm will not have,or will not be able to raise,the cash required to meet the margin calls on its hedges is called:
A)liquidity risk.
B)basis risk.
C)commodity price risk.
D)speculation risk.
E)margin risk.

Question

Quizplus · Accepted Answer

Liquidity risk refers to the risk that a firm will not have enough cash on hand or will not be able to obtain the necessary funds in time to meet its financial obligations, such as margin calls on its hedges. Margin calls occur when the value of the securities held as collateral for a loan or derivative position falls below a certain level, requiring the borrower to add more funds to maintain the position.

The Risk That the Firm Will Not Have,or Will Not