Liquidity risk is the risk that a security cannot be sold quickly, efficiently, or at a fair market price without significantly affecting the security’s price. A highly liquid security has active buyers and sellers, narrow bid-ask spreads, and reliable market depth. A less liquid security may require a price concession to sell, especially in stressed market conditions. Choice C is correct because the question specifically describes a security that is “not readily tradable” without impacting the market price. Credit risk, choice A, is the risk that an issuer or borrower may fail to make required interest or principal payments. Market risk, choice B, is the risk of loss due to broad market movements. Prepayment risk, choice D, is commonly associated with mortgage-backed and callable debt instruments, where principal may be returned sooner than expected. The SIE outline expressly lists “Liquidity” under “Definition and Identification of Risk Types.” It also places risk identification within the broader product-risk competency area, requiring candidates to distinguish between similar but technically different financial risks. Reference: Section 2.2 Investment Risks.