Interest rate risk and Liquidity risk: Difference between pages
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imported>Doug Williamson (Added link to The Treasurers Handbook - Guide to risk managment) |
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Liquidity is access to cash, and liquidity risk revolves around fluctuations in the ability to access cash when it is needed. | |||
It is very difficult to find a universally accepted definition of liquidity risk. | |||
However, it is commonly accepted that liquidity risk comes in two forms: i. Funding liquidity risk and ii. Market liquidity risk. | |||
:i. Funding liquidity risk is defined as a company’s inability to obtain funds to meet cashflow obligations. | |||
For example | :ii. Market liquidity risk refers to the risk that market transactions will become impossible due to market disruptions or inadequate market depth. | ||
The two forms cross over however. | |||
For example if commercial paper or bond markets dry up that is market risk, which will immediately become funding risk if the borrower has insufficient committed bank facilities to act as a stop gap. | |||
== See also == | == See also == | ||
* [[ | * [[Cash]] | ||
* [[ | * [[Liquidity]] | ||
* [[Guide to risk management]] | * [[Guide to risk management]] | ||
==Other links== | |||
[http://www.treasurers.org/node/5644 Liquidity risk management, Will Spinney, ACT 2010] | |||
[ | |||
[[Category:Manage_risks]] | [[Category:Manage_risks]] | ||
[[Category:Risk_frameworks]] | |||
[[Category:Liquidity_management]] |
Revision as of 10:22, 19 November 2014
Liquidity is access to cash, and liquidity risk revolves around fluctuations in the ability to access cash when it is needed.
It is very difficult to find a universally accepted definition of liquidity risk.
However, it is commonly accepted that liquidity risk comes in two forms: i. Funding liquidity risk and ii. Market liquidity risk.
- i. Funding liquidity risk is defined as a company’s inability to obtain funds to meet cashflow obligations.
- ii. Market liquidity risk refers to the risk that market transactions will become impossible due to market disruptions or inadequate market depth.
The two forms cross over however.
For example if commercial paper or bond markets dry up that is market risk, which will immediately become funding risk if the borrower has insufficient committed bank facilities to act as a stop gap.
See also