Liquidity risk and Ratification: Difference between pages

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Liquidity risk has a number of important dimensions for the corporate treasurer.  
1. ''International law''.


These include the corporate organisation as a whole, individual investments, and the wider markets for borrowing and lending.
Approval of an international treaty by the relevant head of state, or the head of state and the legislature, when necessary to bring the treaty into force.


#For an organisation, liquidity risk is the risk that the organisation ceases to have access to the cash it needs in order to meet its financial obligations as they fall due. This can arise from a number of different causes, both internal and external to the organisation.
Most international treaties state expressly whether or not ratification is required, to make them effective.
#For an individual investment, liquidity risk is the risk that the investment cannot be turned into cash quickly and without significant loss in value.
#Liquidity risk at the market level includes the drying up of borrowing markets, disrupting the financing of individual organisations.




The overall aim of liquidity management is to ensure that the company can meet its payment obligations as they fall due.  
2. ''Contract law - agency.''


Consequently, in its broadest terms, liquidity risk includes all the risks that adversely affect liquidity management, i.e. that impact the organisation's ability to pay.
Confirmation or adoption of an act, where necessary for it to have legal effect.


When managing liquidity a treasurer needs to consider the wider environmental aspects such as the riskiness of the sector or industry, market and economic issues, as well as the more direct aspects of delivering liquidity to the business.  
For example, if an agent - without authority - forms a contract with a third party, the principal can ratify and adopt the contract, making it fully effective and enforceable.




For this reason liquidity risk is integrated with business strategy and the fortunes of the business itself, and corporate treasurers need to understand the business model of their organisations to properly manage liquidity risk.
3. ''Company law - sanctioning minor irregularities.''


In the case of minor irregularities in running a company, a general meeting can pass a resolution to sanction the irregularity.


For banks and other financial organisations, liquidity risk management is fundamentally important because of their maturity mismatch, combined with high levels of leverage.
Major irregularities cannot be sanctioned in this way, for example ''ultra vires'' acts, or a fraud on the minority.




== See also ==
''Source: Oxford Dictionary of Law, 8th Edition''
* [[Bank]]
* [[Cash]]
* [[Documentation risk]]
* [[Funding]]
* [[Funding liquidity risk]]
* [[Funding risk]]
* [[Guide to risk management]]
* [[HQLA]]
* [[ILAA]]
* [[ILAAP]]
* [[Leverage]]
* [[Liquidity]]
* [[Liquidity buffer]]
* [[Liquidity Coverage Ratio]]
* [[Market liquidity risk]]
* [[Maturity mismatch]]
* [[OLAR]]
* [[SREP]]




===Other links===
==See also==
[http://www.treasurers.org/node/5644 Liquidity risk management, Will Spinney, ACT 2010]
*[[Agent]]
*[[Company law]]
*[[Comprehensive and Progressive Agreement for Trans-Pacific Partnership]]
*[[Contract]]
*[[Fraud on the minority]]
*[[Free trade agreement]]
*[[General meeting]]
*[[International law]]
*[[International trade]]
*[[Law]]
*[[Legislature]]
*[[Resolution]]
*[[Sanction]]
* [[Treaty]]
*[[Ultra vires]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Corporate_finance]]
[[Category:Manage_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Liquidity_management]]

Latest revision as of 13:32, 18 July 2022

1. International law.

Approval of an international treaty by the relevant head of state, or the head of state and the legislature, when necessary to bring the treaty into force.

Most international treaties state expressly whether or not ratification is required, to make them effective.


2. Contract law - agency.

Confirmation or adoption of an act, where necessary for it to have legal effect.

For example, if an agent - without authority - forms a contract with a third party, the principal can ratify and adopt the contract, making it fully effective and enforceable.


3. Company law - sanctioning minor irregularities.

In the case of minor irregularities in running a company, a general meeting can pass a resolution to sanction the irregularity.

Major irregularities cannot be sanctioned in this way, for example ultra vires acts, or a fraud on the minority.


Source: Oxford Dictionary of Law, 8th Edition


See also

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