Liquidity Management Case Study

Liquidity Management in financial firms in the UK:

Introduction

Risk is the basic element that drives financial behaviors and without risk the financial system would be massively simplified, but this risk is already present in the real world Financial Institutions. Consequently, should manage the risk effectively to survive in this highly uncertain environment of banking which will undoubtedly rest on risk management dynamics. Hence only those banks that have efficient risk management system will survive in the market in the long term.

Monetary policy in the UK aim to achieve monetary stability , and this target usually operates during the price at which money is lent or invests and the interest rate.

In March 2009 the MPC announced that in addition to setting Bank Rate, it would start to inject money directly into the economy sector by purchasing financial assets which often known as quantitative easing.

Furthermore, In August 2013 the MPC provided some explicit guidance regarding the future conduct of monetary policy. The MPC intends at a minimum to maintain the present highly simulative stance of monetary policy until economic recession has been significantly reduced, provided this does not entail material risks to price stability or financial stability.

I. Liquidity management

Liquidity risk was appeared as a major risk in banking so; liquidity management is the top priority for banks management and regulators.

British bank exposed to the variety of risks. The objective of this Part is to identify and describe those risks. The research has outlined the following risks.

Liquidity risk

There are some the potential risks that result of the decrease of liquidity which it will mention as the below.

1) Credit Risk: It...

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...itable cash management by real-time tracking and monitoring of surplus positions, automated account sweeping, not depend on costly intra-day borrowing to enhance liquidity

 More effective investment and funding decisions provided within greater clarity into cash movements.

 Improved balance information through the reconciliation of correspondent movements, removing reliance on assumed settlement and next day statements.

 More efficient management of higher transaction volumes and global cash movements

 Reduce foreigner exchange rate risk by Hedging using derivatives (Foreign Currency Futures, Foreign Currency Swap, Foreign Currency Options, and Foreign Currency Forward).

 Use many tools to manage and evaluate IRR such as Duration Gap Analysis, Maturity Gap Analysis, Simulation Analysis, and Value-at-Risk (VAR) Analysis, and Option-Adjusted-Spread (OAS) Analysis