Market and Liquidity Risk Concepts and a Risk Management Case Study

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Market and Liquidity Risk Management #2: Capital Requirements, Financial Transactions, Monetary Statistics and Interest Rate Risk Afshin Ashofteh; PhD, PGDip, MBA, MSc E-mail | Academic homepage | Nova Research | ResearchGate | Kaggle | Google Scholar | Discussion Group 1 Recap Name Description Market Risk • Associated with interest rates, exchange rates, stock prices & commodity prices • Linked to supply & demand Credit Risk • Risk of loss caused by debtors’ default • Protected through the use of derivatives Liquidity Risk • Any risk of economic loss because of the need to sell relatively less liquid assets to meet liquidity requirements; the risk that a financial instrument cannot be purchased or sold without a significant concession in price because of the market’s potential inability to efficiently accommodate the desired trading size. • Inability to efficiently buy and sell • Can change during investment horizon Operational Risk • Associated with failures in a company’s systems and procedures or from external sources • Can be managed through insurance contracts 2 3 Name Description Model Risk • Risk that a model is incorrect or misapplied • Investors should scrutinize and obje...