Liquidity Risk

Liquidity Risk involves the inability of a firm to fund its illiquid assets. Liquidity risk is an emerging topic in the financial risk world. Liquidity risk is directly linked with credit and market risks, which become uncontrollable because of delayed redemptions. In contrasts with market or credit risks, liquidity risk may result not only in a decrease of the portfolio value, but could also jeopardize the investor’s own credit rating. In other words, if a fund is unable to fulfill a redemption request as agreed, the investor, in turn, may fail to fulfill his own credit commitments. The liquidity issues also indirectly affect market and/or credit risks of the portfolio as those become uncontrollable during the uncertain redemption period.

More in this category: « Volatility Risk

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