Liquidity risk and SOFR term rate: Difference between pages

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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.
''Interest rates - reference rates - forward-looking benchmarks - USD - SOFR''.
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.
Term SOFR refers to a forward-looking benchmark interest rate, based on the USD Secured Overnight Financing Rate (SOFR), as published by the New York Fed.


: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.
:<span style="color:#4B0082">'''''SOFR term rate widely welcomed'''''</span>


The two forms cross over however.
:"USD Markets have been busy over the Summer, and it’s beginning to feel as it the direction of travel [in USD LIBOR transition] is more aligned.  


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.
:In particular, the recommendation of a SOFR Term rate has been widely welcomed and should reduce the demand from some parts of the market for credit sensitive rates (such as BSBY) as an alternative to LIBOR."
 
:''Status Update – LIBOR transition - Sarah Boyce - Association of Corporate Treasurers - 07 September 2021''




== See also ==
== See also ==
* [[Cash]]
* [[Bank of England Base Rate]]
* [[Liquidity]]
* [[Benchmark]]
* [[BSBY]]
* [[New York Fed]]
* [[Risk-free rates]] (RFR)
* [[SOFR]]
* [[SONIA]]
* [[Term]]
* [[Term fixing]]
* [[Term rate]]
* [[Term SONIA reference rate]]
 
[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Long_term_funding]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]
[[Category:Financial_products_and_markets]]

Revision as of 15:37, 30 September 2021

Interest rates - reference rates - forward-looking benchmarks - USD - SOFR.

Term SOFR refers to a forward-looking benchmark interest rate, based on the USD Secured Overnight Financing Rate (SOFR), as published by the New York Fed.


SOFR term rate widely welcomed
"USD Markets have been busy over the Summer, and it’s beginning to feel as it the direction of travel [in USD LIBOR transition] is more aligned.
In particular, the recommendation of a SOFR Term rate has been widely welcomed and should reduce the demand from some parts of the market for credit sensitive rates (such as BSBY) as an alternative to LIBOR."
Status Update – LIBOR transition - Sarah Boyce - Association of Corporate Treasurers - 07 September 2021


See also

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