Funding liquidity risk

The risk that a firm cannot raise cash to meet its payments, or can do so only at a high cost. Reliance on short-term wholesale funding raises it.

Where you will meet it

Funding liquidity risk comes up in 11 learning outcome notes across the FRM syllabus. A few of them:

• Introduction to Derivatives
  FRM Part I · Financial markets and products

  “Liquidity risk includes funding risk from margin calls and the difficulty of closing a position.”

• The Building Blocks of Risk Management
  FRM Part I · Foundations of risk management

  “Funding liquidity risk is being unable to raise cash to meet obligations when due.”

• Margin (Collateral) and Settlement
  FRM Part II · Credit risk measurement and management

  “Liquidity risk: variation margin calls demand cash or high-quality assets quickly, often when markets are stressed, which is funding liquidity risk.”

• Liquidity Risk
  FRM Part II · Liquidity and treasury risk measurement and management

  “Funding liquidity risk is the risk that a firm cannot meet cash obligations when due, or can do so only at distress cost.”

All terms beginning with F · FRM glossary

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