A maturity mismatch typically involves short-term borrowers funding long-term assets. This situation arises when a firm uses short-term liabilities to fund long-term assets. This is a common practice in many financial institutions, particularly banks, where they borrow funds on a short-term basis (such as deposits from customers) and lend on a long-term basis (such as mortgages and business loans). This practice allows the firm to earn a spread between the interest it pays on short-term borrowings and the interest it earns on long-term loans. However, it also exposes the firm to liquidity risk, as the firm may face difficulties in meeting its short-term obligations if it cannot quickly convert its long-term assets into cash.

Choice A is incorrect. While a maturity mismatch may not be immediately apparent on a firm's balance sheet, it does not necessarily mask its liquidity. Liquidity refers to the ability of a firm to meet its short-term obligations, which can be affected by various factors other than maturity mismatch.

Choice C is incorrect. Maturity mismatches can indeed occur in hedging scenarios. For instance, if a company uses short-term futures contracts to hedge against long-term price risks,