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Liquidity risk has different meanings in different contexts.
In investing terms, bondholders face varying liquidity risks based on the likelihood that they may have to sell a bond below its listed value. This type of liquidity risk can actually extend to any security, describing the risk that an asset finds no buyers due to lack of liquidity in its given market.
In economics and business management, liquidity refers to the ability of a financial institution to meet its operational and debt obligations without incurring severe losses or defaulting.
These two types of risk are sometimes called funding cash-flow liquidity risk and market asset liquidity risk. Liquidity Risk in Investing Within the commonly accepted categories of financial risks, liquidity risk is considered a type of market risk.
It describes the phenomenon of opposing market participants buyers and sellers that are unable to find one another in a timely manner. Since no trade can be made, buyers may have to raise their bids or sellers may have to lower their asks to exchange an asset.
Different assets are often categorized into different levels of liquidity risk, and investors generally demand more returns for increased liquidity risk. All tradable assets assume some level of liquidity risk. This is even true in highly liquid markets, such as the foreign exchangewhere liquidity fluctuates based on which markets are currently open.
Liquidity Risk in Economics A primary concern among accountants and treasurers, business liquidity risk asks how well-positioned a company is to pay its bills if revenues slow down.
This type of risk is very closely related to credit riskleverage and cash flow. Companies that have higher liquidity risks are more likely to face default and receive poor credit ratings.Access to Capital and Market Liquidity As Directed by the Explanatory Statement to the Consolidated Appropriations Act, (P.L.
) This is a report by the Staff of the Division of Economic and Risk Analysis of the U.S. Securities and Exchange Commission.
The Commission has expressed no view.
Publications and updates by the Basel Committee on Banking Supervision (BCBS), including on topics related to the Basel II Framework and its implementation. Liquidity The BIS hosts nine international organisations engaged in standard setting and the pursuit of financial stability through the Basel Process.
Basel Committee - Liquidity. "Towards an Operational Framework for Financial Stability: "Fuzzy" Measurement and its Consequences," Working Papers Central Bank of Chile , Central Bank of Chile.
Claudio Borio & Claudio Mathias Drehmann, About BIS The BIS's mission is to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and .
Bank Liquidity Requirements: An Introduction and Overview. liquidity requirements, central bank lender of last resort facilities, and the interplay such as an inability to access the debt.
Financial Analysis: Solvency vs. Liquidity Ratios. FACEBOOK TWITTER Debt exceeds equity by more than three times, while two-thirds of assets have been financed by debt. Financial Analysis.