Liquidity risk

2. Noise trader risk Noise trader risk refers to the risk that the mispricing worsens in the short run because there is possibility that pessimistic traders become even more pessimistic about the future. Once a position is taken, noise traders may drive prices farther from fundamental value, and the arbitrageur may be forced to invest additional capital, which may not be available, forcing an early liquidation of the position. 3. Information gap and financing issues Generally, the arbitrageurs…

explains financial risk management as a process to deal with the uncertainties resulting from financial markets. It involves assessing the financial risks facing an organization and developing management strategies consistent with internal priorities and policies. Addressing financial risks proactively may provide an organization with a competitive advantage. It also ensures that management, operational staff, stakeholders, and the board of directors are in agreement on key issues of risk.…

Crises and the Future of Securitization”, four global financial crisis have been reviewed. Although different factors precipitated the crisis in those four cases, two vital indicators of financial crisis can be identified, which are the excessive liquidity and the excessive leverage. Furthermore, misguide of changes in regulatory framework might be a root cause of the financial crisis. (Cabral, 2013) In the case of “Asian Financial Crisis”, excessive leverage ratio was one of the major…

Objectives of Liquidity Management: In the balance-sheet approach, the objective of liquidity management is to provide for the optimal level of liquidity. However, providing for financial mobility at minimum cost should gain priority as the main objective of liquidity management in the flow approach. As a result, three basic activities cash flow planning, implementation of early warning systems and resource planning for financial mobility should constitute the content of liquidity management in…

Underlying Assumption There are two possible solutions that we suggest earlier to solve this case, the first one is for Temasek to keep their shares in ABC Learning and the second is to sell it. We have several underlying assumptions to support each of our proposed solutions, that will help us to weigh the cost and benefit of them in order to rationalize our final decision. For keeping their shares, we have two main reasons. The first one is because Temasek has acquired a significant percentage…

If we compare it to their performance in 2006, they were considered in the safe zone (Z Score > 2.6), which means the company is believed to survive in the future. Volatility of the share is also increased in 2007, which represents there are more risk associated compared to the previous year, so there’s a high probability that the price will either flattened or decline in the future.Moreover, ABC Learning seems wasn’t generating enough return to justify the capital invested, since economic…

While the participants in a given Takaful mudarabah have the right to share the surplus profits generated, at the same time they are liable for additional sums if the initial premiums paid during a period are not sufficient to meet all the losses and risk incurred during that period. Takaful companies can also create reserves like conventional insurance companies as there is need for insured to make supplemental contributions if claims exceed…

stock market prices is a manifestation of market participants' expectations of the future economy. While commodity prices are often closely linked to economic performance: In the economic prosperity, the real industry demand increases, the market liquidity is abundant, and the prices of production and investment commodities rise; in the economic downturn, the real industry demand decreases, and the price of gold and other commodities with hedging function declines. It can be seen that the stock…

Introduction The problems of using derivatives as a risk management tool by financial institutions have been demonstrated in the Banc One case. The major objective of this paper is to provide more insight into the case through analysis of five specific questions in relation to Banc One’s performance between 1993 and 1994. We start by addressing the bank’s problems and potential reasons that lead to such issues. Evidences and facts show that both investors and managers blame the use of interest…

6.3 Recommendations: Managing risk is essential for any successful organization. Business must develop enterprise risk management plan to improve their ability to effectively manage any risks. Enterprise risk management surpasses an organization’s silos to identify and manage the variety of risks. Risk management is not a new phenomenon in the gold jewelry industry. To manage the business of risk management, many enterprises were engaged from some time in gold trading industry. The new aspect…