Study Notes: Malz, Chapter 12: Liquidity and Leverage

Malz, Chapter 12: Liquidity and Leverage Study Notes will cover the following learning objectives:

Differentiate between sources of liquidity risk and describe specific challenges faced by different types of financial institutions in managing liquidity risk.
Summarize the asset-liability management process at a fractional reserve bank, including the process of liquidity transformation.
Compare transactions used in the collateral market and explain risks that can arise through collateral market transactions.
Describe the relationship between leverage and a firm’s return profile (including the leverage effect), and distinguish the impact of different types of transactions on a firm’s leverage and balance sheet.
Distinguish methods to measure and manage funding liquidity risk and transactions liquidity risk.
Calculate the expected transactions cost and the spread risk factor for a transaction, and calculate the liquidity adjustment to VaR for a position to be liquidated over a number of trading days.
Discuss interactions between different types of liquidity risk and explain how liquidity risk events can increase systemic risk.

After reviewing the notes, you will be able to apply what you learned with practice questions.

Shop Courses