Financial Planner

Answer: A - Liquidity risk improves when more participants are engaged in trading a security. Liquidity risk represents the ease with which a security can be sold at a fair price without risk of loss. Securities can be marketable but not necessarily liquid. The primary measure of liquidity is the size of the spread between the bid and ask. A larger spread signals an illiquid market. Investors want liquid markets so as to sell their securities quickly at a fair price.