Answer: Liquidity risk.

## Explanation **Correct Answer: A - Liquidity risk** **Enron (2001):** - Used complex off-balance sheet entities to hide debt - When these practices were exposed, they couldn't access funding - Credit rating downgrades triggered liquidity crisis - Unable to meet short-term obligations despite appearing solvent **London Whale (JPMorgan Chase, 2012):** - Massive credit derivative positions in the CIO office - Positions became too large and illiquid to unwind - When market moved against them, couldn't exit positions without huge losses - Illiquid positions created massive mark-to-market losses **Common Liquidity Risk Factors:** 1. **Market liquidity risk**: Inability to exit positions without significant price impact 2. **Funding liquidity risk**: Inability to obtain financing to meet obligations 3. **Asset-liability mismatch**: Short-term funding for long-term positions **Other risk considerations:** - Both cases involved operational risk (poor controls) - Market risk (positions moving against them) - However, the immediate trigger for both failures was **liquidity risk** Both organizations suffered from positions that became too large and illiquid, making them vulnerable when market conditions changed.

Author: LeetQuiz Editorial Team