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Liquidity risk management
What is liquidity risk in the context of banking?
Liquidity risk is the risk that a bank will be unable to meet its financial obligations as they fall due without incurring unacceptable losses. It arises when a bank cannot fund increases in assets or meet obligations at a reasonable cost.
What is liquidity horizon in the context of market liquidity risk?
Time needed to exit or hedge a position without moving market price.
What is the difference between funding liquidity risk and market liquidity risk?
Funding liquidity risk is the inability to raise funds to meet cash flow obligations, while market liquidity risk is the risk that a bank cannot easily offset or eliminate a position in the market without significantly affecting its price.
What is the minimum LCR that Indian banks must maintain as per RBI?
100% of net cash outflows over a 30-day stress period.
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