International banking Essay Example | Topics and Well Written Essays - 2000 words

International banking - Essay ExampleHaving considered these two versions of commentary for funding liquidness, it is also worth noting here that some experts (Brunnemeier and Pedersen, 2007 Strahan, 2008) have defined liquidness from disdainrs and investors perspectives, by stating that it refers to their cleverness and potential to raise funds in short term. In cases when banks are unable to make by the way payments or traders or investors are unable to generate funds from the market, as readily as they could have, in that location is a situation involving funding liquidness venture. International Monetary Fund (2008) defines funding liquidness risk by stating that it is the lack of capability of a financial institution to discharge its liabilities or financial obligations in due time. Normally, funding liquidity risk emerges from availability issues pertaining to the following sources of funding liquidity Trading of Assets Securitization contribute Syndication and Obtai ning loans from Secondary Market. Having considered these factors, it is not a simple task to measure funding liquidity risk. ... t sour for funding liquidity, Drehmann and Nikolaou (2008) have suggested a more simplistic measure for funding liquidity risk dapple keeping in view the central bank as the source for funding liquidity. The adjusted plead is denoted by the following expression On the basis of this adjusted bid determination expression, Drehmann and Nikolaou (2008) then constructed a proxy for the funding liquidity risk, which is the sum of all bids made by all banks. The proxy is presented as follows Or in other words The review of theoretical and empirical literature pertaining to funding liquidity risk shows that increased risk associated with funding liquidity reflects an increased valuation of bids in the market, as investors and traders explore more return for higher risk additions. In order to normalize the bid price, Drehmann and Nikolaou (2008) have introduce d the concept of adjusted bid, which is ultimately used in the measurement of liquidity funding risk. Having discussed funding liquidity, funding liquidity risk and its measurement, it is now relatively a simple task to describe and understand market liquidity, which in a similar manner, refers to the ability of traders to sell and/or buy assets in the market with no or little influence on its price and at lowest possible costs (Hooker & Kohn, 1994). Market liquidity relates directly to the cost of an asset in the market. It is the bid-ask spread aimed at determining the loss caused to sellers upon selling an asset in the market and purchasing it again at the same time. Another factor which relates to market liquidity is the market depth. Market depth is depictive of the number of units of an asset traders are willing to trade while keeping in view the existing prices, i.e. both for bid and ask, provided that no changes