PDFprof.comSearch Engine CopyRight

What is liquidity risk in your own words


Liquidity risk is defined as the risk of incurring losses resulting from the inability to meet payment obligations in a timely manner when they become due or from being unable to do so at a sustainable cost.

What is liquidity risk with example?

A liquidity risk example in banks is a decline in deposits or rise in withdrawals (which are liabilities for the bank). As a result, the bank is unable to generate enough cash to meet these obligations. This was dramatically illustrated by the global financial crisis of 2008-2009.

What does liquidity mean in simple terms?

Share. Liquidity definition. Liquidity is a company's ability to convert assets to cash or acquire cash—through a loan or money in the bank—to pay its short-term obligations or liabilities. How much cash could your business access if you had to pay off what you owe today —and how fast could you get it?

What has liquidity risk?

Liquidity risk occurs when an individual investor, business, or financial institution cannot meet its short-term debt obligations. The investor or entity might be unable to convert an asset into cash without giving up capital and income due to a lack of buyers or an inefficient market.

What is another term for liquidity risk?

Market Liquidity Risk. Market or asset liquidity risk is asset illiquidity. This is the inability to easily exit a position.