medium · Frm Part 2 Liquidity & Treasury Risk
A fund manager is worried about 'Market Liquidity' versus 'Funding Liquidity.'
Which of the following events is a direct manifestation of Funding Liquidity risk?
- A large sell order in a thin market causes the price of a stock to drop by 5% before the trade is completed.
- The correlation between two asset classes increases from 0.3 to 0.8 during a market crash.
- A bank is unable to roll over its short-term commercial paper and must sell assets at a loss to meet a cash obligation.
- The bid-ask spread on a sovereign bond widens from 2 bp to 20 bp during a period of market volatility.
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