What type of risk refers to the potential collapse of a financial or payment system due to market events?

Systemic risk refers to the potential collapse of a financial or payment system due to market events. It highlights the interconnectedness of various financial institutions and markets, where distress in one part of the system can lead to a cascade of failures throughout the network. This type of risk is particularly concerning because it affects not just individual entities but the entire financial ecosystem, making it crucial for regulators and institutions to monitor and manage systemic risks effectively.

In contrast, operational risk pertains to losses resulting from inadequate or failed internal processes, people, and systems, while market risk relates to the potential losses due to fluctuations in market prices. Liquidity risk involves the inability to meet short-term financial obligations, which, while impactful, does not encompass the broader systemic implications of a financial or payment system's collapse. Thus, systemic risk is the most appropriate answer as it captures the essence of widespread financial disruptions triggered by market events.