Liquidity At Risk – A stochastic look at cashflows

It has been clearly established that when customers default, it results in liquidity risk; when there is a fraud within the organisation, it impacts liquidity, when there is funding concentration, there is clear evidence of illiquidity if the funders do not renew credit lines, and when markets change, it changes the liquidity profile of an organization.

Liquidity is a second order risk, and one does not manage second order risks without adequately monitoring, measuring and controlling primary risks. If an organisation controls credit risk, it is, in part, controlling liquidity risk.

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