over the years, experienced liquidity managers have developed several strategies for dealing with liquidity problems. explain...

over the years, experienced liquidity managers have developed several strategies for dealing with liquidity problems. explain the differences among these strategies

a) Asset liquidity management

b) Borrowed liquidity (liability) management

c) Balanced liquidity management

Solutions

Expert Solution

Differences between different strategies used by experienced liquidity managers:

(a). Asset liquidity(liability) management : Experienced liquidity managers manages the firms liquidity to reduce the risk of loss to the firms arised due to the not payment of liability on time. It mainly focuses on the timing of cashflows.

In this process managers ensure that the assets must available to pay the liabilities on time and also make sure that the assets can be converted into cash whn due date arrive.

(b). Borrowed Liquidity Management: It is strategy used by managers to borrow the funds from outside and use to manage the liquidity of the firms. Firm attacts the volume of liquidity it needs by raising or lowering the rate of interest it is willing to pay on borrowed funds.

(c). Balanced Liquidity management: Here in balanced liquidity management firm uses both the strategies (asset liquidity management and Borrowed liquidity management) to pay liabilities on the debts on time and reduce the risk of loss to the firms.

So, this is the major difference between these three strategies that the liquidity managers uses to save the firm from loss.

jeff jeffy answered 1 year ago

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