The main purpose of liquidity risk assessment is to ensure what?

The main purpose of liquidity risk assessment is to ensure that investors can sell investments quickly at fair value. This assessment is crucial because liquidity risk refers to the potential difficulty an investor might face when trying to sell an asset without significantly affecting its price. A thorough liquidity risk assessment helps investors understand how easily they can convert their investments into cash, which is essential for financial planning and navigating market fluctuations.

In a well-managed investment portfolio, liquidity risk is carefully monitored so that investors can respond to market changes or personal financial needs without incurring substantial losses. If an investment is illiquid, it may not be possible to sell it at a fair market price, leading to unfavorable conditions when trying to access cash. Ensuring that investors can sell investments quickly at fair value enables them to maintain control over their financial situation and react appropriately to economic events or personal circumstances.

Other options, while relevant to investing in broader terms, do not capture the primary intent of liquidity risk assessment as effectively. High return achievement, avoidance of regulatory penalties, and diversification are all important aspects of investment strategy, but they do not directly relate to the assessment of liquidity, which is fundamentally about the ease and fairness of selling assets.