Join Chennakeshav Adya, Managing Partner, and Dipak Khot, Partner Risk Management, as they discuss liquidity and market risk.

Liquidity risk is associated with an investor's ability to transact their investment for cash. Typically, investors will require some premium for illiquid assets which compensates them for holding securities over time that cannot be easily liquidated.

Before the global financial crisis (GFC), liquidity risk was not on everybody's radar. Financial models routinely omitted liquidity risk. But the GFC prompted a renewal to understand liquidity risk.1? One reason was a consensus that the crisis included a run on the non-depository, shadow banking system - providers of short-term financing, notably in the repo market - systematically withdrew liquidity. They did this indirectly but undeniably by increasing collateral haircuts. After the GFC, all major financial institutions and governments are acutely aware of the risk that liquidity withdrawal can be a nasty accomplice in transmitting shocks through the system - or even exacerbating contagion.

A risk management strategy provides a structured and coherent approach to identifying, assessing and managing risk or uncertainties followed up by minimizing, monitoring and controlling the impact of risk realities or enhancing the opportunity potential by applying coordinated and economical resources.

Check www.adancorporate.com/en-uk/risk-management/index-risk-management.html for more on Adan Corporate's Risk Management practice.