Chapter 7: Liquidity Risk

Question 1

What is the maturity ladder?

Answer 1

Device for comparing cash inflows and outflows. Calculates net excess/deficit on selected maturity dates.

Question 2

How can liquidity shortfall be calculated?

Answer 2

Cash inflows - outflows on a certain date.

Question 3

What is the downside of using contractual cash receipts?

Answer 3

They may not be accurate, may have to be risk weighted

Question 4

What two factors are used in assessing asset liquidity?

Answer 4

Marketability - how easily they can be sold
How easily the assets can be used as collateral for cash

Question 5

What is Funding Liquidity?

Answer 5

How a firm obtains liquidity from the liability side of its balance sheet

Question 6

What is funding liquidity risk?

Answer 6

The risk that a bank will become unable to settle obligations with immediacy

Question 7

What is liquidity gap analysis?

Answer 7

Assessing cash inflows/outflows in a bracket to view liquidity gaps in a timeframe

Question 8

What is immediacy?

Answer 8

The measure of time it takes to achieve a deal in a market

Question 9

What is resilience?

Answer 9

The measure of speed with which prices return to equilibrium following a large trade

Question 10

What is the ILAA?

Answer 10

Individual Liquidity Adequacy Assessment

Question 11

What must firms subject to the ILAA provide?

Answer 11

Full review of firms liquidity, access to liquidity and composition of assets.
Review of liquidity risk management