Which statement is true regarding asset prices during a financial crisis?

During a financial crisis, it is common for asset prices to decline sharply. This occurs due to a variety of factors, including a loss of confidence among investors, increased risk aversion, and a deterioration of economic fundamentals. As uncertainty rises, liquidity can dry up, leading to forced selling by individuals or institutions who need to raise cash. Additionally, the overall demand for assets tends to decrease when consumers and businesses face economic hardships, resulting in falling prices.

Market participants may also reassess the value of certain assets, leading to significant price corrections. The panic often associated with a financial crisis can exacerbate price declines as investors rush to exit positions. This market behavior is well-documented in historical financial downturns, where asset prices experience substantial drops as economic conditions deteriorate.