Session 10 Flashcards
What is solvency?
The company having more assets than liabilities, so equity value is positive
What is liquidity?
The ability of a company to make their due payments
What are the 2 types of liquidity risk?
Liquidity trading risk
Liquidity funding risk
What is liquidity trading risk?
That the asset is illiquid so you can’t sell it in the market for the price you want when you want
How do you find the cost of liquidation in liquidity trading risk?
Sum((Si*Ai)/2)
What is Si?
The proportional bid-offer spread (offer - bid)/mid market
What is Ai?
The midmarket value of your position (qty asset*mid market val)
What is liquidity funding risk?
When nobody is giving you cash
What is the liquidity coverage ratio?
a stress test that requires banks to hold an amount of high-quality liquid assets that’s enough to fund cash outflows for 30 days
How do you find the liquidity coverage ratio?
High quality liquid assets/net CF for 30 day period >= 100%
What is the net stable funding ratio?
amount of available stable funding relative to the amount of required stable funding. This ratio should be equal to at least 100% on an ongoing basis.
How do you find the NSRF?
Amount of stable funding/required stable funding >= 100%
How do you get the amount of stable funding in NSFR?
multiply each category of funding by its ASF factor
How do you get the required of stable funding in NSFR?
multiply each catergory of funding by its RSF factor
