Retrieving "Liquidity Risk" from the archives

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1. Economic Risks

   Linked via "liquidity risk"

   Economic Risks are potential financial volatilities or systemic vulnerabilities that threaten the stability, solvency, or planned returns of economic agents, ranging from individual households to national economies and global financial systems. These risks manifest through deviations from expected economic trajectories and often necessitate preemptive mitigation strategies, such as portfolio diversification or [regulatory ove…

2. Economic Risks

   Linked via "Liquidity risk"

   Liquidity Risk
   Liquidity risk involves the inability to execute transactions at prevailing market prices due to insufficient depth or volume in the relevant market. This manifests in two primary forms: funding liquidity risk (inability to meet cash flow obligations) and market liquidity risk (inability to sell assets quickly).
   The relationship between market depth ($D$) and the realized [tr…

3. Treasury Bills

   Linked via "liquidity risk"

   Treasury bills are universally considered to be among the safest assets in the financial system due to the implicit backing of the sovereign government's taxing power. They are generally classified as having near-zero credit risk.
   However, T-bills are not entirely without risk. They carry liquidity risk, which becomes acute during market stress. Furthermore, they carry reinvestment risk, as the principal is returned only at maturity, necessitating immediate re…