Explanation:

Liquidity risk refers to the risk that an asset cannot be sold quickly enough in the market to prevent a loss (or make the required profit) without making a significant price concession. This occurs when there is insufficient market depth or when market conditions make it difficult to execute trades at or near the current market price.

Key points:

• Liquidity risk involves the inability to buy or sell an asset without affecting its price significantly
• Solvency risk refers to the risk that an entity cannot meet its long-term financial obligations
• Settlement risk is the risk that one party fails to deliver securities or cash as agreed in a transaction

When an investor must sell an asset quickly and accepts a lower price than the current market value to find a buyer, this is a classic example of liquidity risk. The price concession represents the cost of converting the asset to cash quickly.