Liquidity risk refers to the possibility that an individual or organization may not be able to quickly convert assets into cash without significantly affecting their value. This can occur when there are not enough buyers in the market or when the asset is not easily tradable. For example, real estate properties may take time to sell, leading to potential liquidity issues. In financial markets, liquidity risk can impact investors and institutions alike. If a company faces liquidity risk, it may struggle to meet its short-term obligations, such as paying off debts or funding operations. This can lead to financial instability and may require external financing or selling assets at unfavorable prices.