What does liquidity risk refer to in treasury management?

Liquidity risk in treasury management specifically pertains to the potential difficulty an organization might face in meeting its short-term financial obligations as they come due. This can arise when there are insufficient liquid assets available to cover immediate expenses or liabilities, such as payroll, invoices, or unexpected costs.

When a company faces liquidity risk, it may find itself in a position where it has assets that are not easily convertible to cash or not enough cash on hand to fulfill its obligations. This underscores the importance of maintaining appropriate liquidity levels to ensure that an organization can operate smoothly and avoid insolvency.

The other answer choices do not accurately depict liquidity risk. For instance, poor investment performance pertains to market or operational risk, while market fluctuations relate to the volatility in asset prices. Lastly, the risk of fraud involves threats to the integrity and security of financial operations rather than the management of cash resources to cover obligations. This distinction reinforces the unique focus of liquidity risk within treasury management.