Match the items of List-I with the items of List-II and select the correct answer: List-I List-II a. Liquidity risk 1. Risk related to purchasing power of income b. Business risk 2. Risk related to firm’s capital structure c. Financial risk 3. Risk related to inability to pay its dues on time d. Inflation risk 4. Risk related to fluctuation in profits

The correct answer is: C. a-3, b-2, c-4, d-1

• Liquidity risk is the risk that a company will not be able to meet its short-term obligations. This can happen if the company does not have enough cash on hand or if it is unable to sell its assets quickly enough.
• Business risk is the risk that a company’s profits will fluctuate due to changes in the economy, industry, or competition. This risk is inherent in all businesses, and it cannot be eliminated completely.
• Financial risk is the risk that a company will not be able to meet its long-term obligations. This can happen if the company takes on too much debt or if its assets are not worth enough to cover its liabilities.
• Inflation risk is the risk that the purchasing power of a company’s income will decline due to inflation. This risk is particularly high for companies that have a lot of debt, as the interest payments on their debt will increase in real terms.

Here is a more detailed explanation of each option:

• Option A is incorrect because it matches liquidity risk with inflation risk. Inflation risk is the risk that the purchasing power of a company’s income will decline due to inflation, while liquidity risk is the risk that a company will not be able to meet its short-term obligations.
• Option B is incorrect because it matches business risk with financial risk. Business risk is the risk that a company’s profits will fluctuate due to changes in the economy, industry, or competition, while financial risk is the risk that a company will not be able to meet its long-term obligations.
• Option C is correct because it matches each item in List-I with the correct item in List-II.
• Option D is incorrect because it matches liquidity risk with financial risk. Liquidity risk is the risk that a company will not be able to meet its short-term obligations, while financial risk is the risk that a company will not be able to meet its long-term obligations.