Funding Liquidity Risk
We begin our discussion of theoretical and practical liquidity risk problems with an analysis of funding liquidity risk, which we have previously defined as the risk of loss stemming from an inability to obtain unsecured funding at economically reasonable levels when needed. If short and long-term debt facilities and off-balance sheet contingencies cannot be accessed as required, a firm might experience funding losses; when coupled with the asset liquidity risk problems discussed in the next chapter, more serious instances of financial distress can develop.
KeywordsCash Flow Credit Rating Financial Distress Liquidity Risk Generally Accept Account Principle
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