Description: Liquidity risk management refers to the practice of identifying and mitigating the risks associated with a lack of liquidity in a financial entity or company. This risk arises when an organization cannot meet its short-term financial obligations due to insufficient liquid assets. Liquidity is essential for the daily operations of any entity, as it allows covering operational expenses, paying debts, and making investments. Effective liquidity risk management involves implementing strategies and policies that ensure the company maintains an adequate level of liquid assets, as well as the ability to access financing under favorable conditions. This includes cash flow planning, assessing asset quality, and diversifying funding sources. Additionally, financial regulations, such as Basel III, have emphasized the importance of liquidity risk management, establishing minimum requirements that institutions must meet to ensure their financial stability. In a volatile economic environment, liquidity risk management becomes a critical component for the sustainability and long-term growth of organizations.
