Essays on Relationship between Market Liquidity Risks and Funding Liquidity Risks for International Banks Assignment

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The paper "Relationship between Market Liquidity Risks and Funding Liquidity Risks for International Banks" is a great example of a finance and accounting assignment.   Market liquidity and funding liquidity are the two major components that determine the overall liquidity and resiliency of any financial market. Market liquidity refers to the cost of selling any asset. This is related to the bid-ask spread which is used to measure the amount of money that any individual or institutional trader would lose if one unit of any asset is sold and immediately bought back. Market liquidity may also refer to the depth of the market which indicates the number of units that a trader can buy or sell at the prevailing bid price or ask price of the asset without having to shift the price.

The ability of the trader to move the markets by influencing the bid and ask prices of the financial instruments and assets is also a factor that determines the liquidity of the market. Often a deep market is found to be more stable because large orders are required for changing the bid and ask prices of assets.

In the case of internationally operating banks, the market is generally deep and as such, price movements are greatly controlled by the entities of the market. Market resiliency is an important element related to the liquidity level of any financial or capital market. Market resiliency is used to indicate the time that will be required for the asset prices that have decreased to increase to the desirable extent. Funding liquidity risks in banks are primarily based on the risks associated with cash flow management.

Funding liquidity is used to describe particular features of a financial agent within a market. It also refers to the ability of a trader or financial agent to meet the obligations that may arise with relation to the financing of the assets and loans within the market. Funding liquidity is a unique binary concept that is distinct from market liquidity. The international banks generally manage the funding liquidity risks by managing the Line of Credit (LOC) of the banks. The banks have to control both the liquidity of the assets and the availability of cash inflows in order to ensure that they can mitigate the volatilities and resiliencies within the financial market in which they are operating.

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