Is Liquidity Risk Management Important For Rbs Finance Essay - Free Essay Example

Liquidity and Liquidity Risk management, both are important for organisation so there is not single question regarding its importance towards RBS. I can say yes because Liquidity Risk Management enable organisation to pay its debt when they come due with certain condition and specified manner. Yes, Liquidity risk management is important especially for financial organization as well as for banks. It enables organisation to pay its debts in time without loosing values of firms assets. Answer 1.3 No, Liquidity Risk Management is not as much important as other financial strategic decision making because If you some effective financial strategy in the business than Illiquid situation will never come to face. So financial strategic decision making is important for RBS as compared to Liquidity Risk Management. Answer 1.4 No, RBS will never depend on the Liquidity Risk Management because before last recession RBS was maintaining Liquidity risk even though RBS had faced shortage of cash. It is not much important for RBS than other risk management. Answer 1.5 Liquidity risk management is not important for only RBS but it is also important for all banks and financial institutions. Liquidity can make firm to enable to pay its obligations when they come due. Answer 1.6 Yes, I think it is important for RBS to maintain credit balance in both RBS and NatWest. Answer 1.7 Liquidity and its management both are the part of financial strategies of the business. RBS is a financial institute and it is quite necessary for them to maintain enough cash fund to pay its debts in time and liquidity risk policy enables to do so. Liquidity and Recession 2 What was the reason behind the last recession especially for Banking sector (RBS)? Answer 2.1 First of all last recession of 2007-2010 was came from United States of America by subprime mortgage crisis and it was impacted to only financial sectors of world and specially to western countries. End of 2006 and start of 2007 was boom time, there were only growth in the market. Banks were lending money in the market without any securities. Due to coming in overconfidence bye banks and investors, recession time start and it was reason for RBS also because before this time RBS was doing quite well. Answer 2.2 It was only due to overconfidence of financial institutions. Financial organizations came into over confidence and invested money in the market without any securities. This was the reason of global financial crisis. RBS was also come into trouble because of worthless acquisition. For business development RBS did lot of acquisition and invested lot of money even some of those acquisitions were useless and worthless. Answer 2.3 Reasons behind the last recession were sub-prime mortgage crisis, housing bubble and oil pricing bubbles. These three hurdles had also affected to RBS and all financial institutions and some of them were fall down. Answer 2.4 Lack of securities and overconfidence were reasons behind the global financial crisis. Answer 2.5 It is clear and everyone knows about the recession, its reasons and its effects. Sub-prime mortgage crisis was the main reason behind the credit crunch. Same things happened with RBS. Answer 2.6 Reasons for the last recession were housing price bubble, lack of liquidity fund, sub-prime mortgage crisis and increasing inflation. Answer 2.7 RBS was using acquisition techniques for business expansion. It was right but not suitable because reserve fund is also necessary during critical time to survive. RBS had not maintained liquidity fund and due to this, RBS had to face credit crunch. 3 Can liquidity risk management help organisation to survive during recession? If yes than how did it helped to RBS? Answer 3.1 If we talk in the context of last recession than I will say yes because last recession was only due to not available enough cash with organisation, and liquidity management is only key to solve this problem so it is quite true to say that LRM helps organisation to survive during recession. Answer 3.2 No, Liquidity risk management can help organisation to solve illiquid situation where as last recession was due to non availability of fund that business do need for their operation as well as to meet regular expenses. Liquidity Risk Management can not solve insolvency condition. Answer 3.3 Yes, it can help organisation to survive during credit crunch but at some extent only. Answer 3.4 Liquidity Risk Management is one of the risk management policies. It can help organisation to solve short term funding problem but last credit crunch was into action for almost 3 years. So it is not possible with Liquidity Risk management. Answer 3.5 Sometime it can help or sometime it can not. So it depends upon the circumstances of the problem. If we talk in the context of last credit crunch, it can and it also did to many banking organizations. Answer 3.6 Risk Management policies are most important for all business organisation and Liquidity Risk Management policy is one of them. So it is also important and helpful for business organisation like as RBS. Answer 3.7 Now a day, Business can perform on the base of certain strategies and policies which can help an organisation to develop and run business even in tough conditions as well as to gain competitive advantages. So Liquidity Risk Management policy is one of them which help us to deal with short term payments and debts. Liquidity and Trust, Reputation and Solvency 4 From your point of view, is there any relation between liquidity and solvency? Answer 4.1 Yes, because liquidity and solvency are two sides of a coin and they are connected with each other. Illiquidity comes from insolvency but insolvency never comes from illiquidity. So I can say like as there is a relationship between liquidity and solvency. Liquidity is a part of solvency. Answer 4.2 No, there is not any relation between Liquidity and Solvency. Illiquidity doesnt come from insolvency but Sometime insolvency comes from the continuous illiquidity. So there is only on side relation, illiquidity comes from some business loses and wrong investment decision like as RBS did in past. Answer 4.3 Liquidity and solvency are connected with each other, so I can say that both have relation with each other. Answer 4.4 Yes, they both are two sides of a coin. If Illiquidity happens than insolvency will also happen after sometimes. There is a positive relation between liquidity and solvency. Answer 4.5 Yes, there is a relationship between liquidity and solvency. If company has sound liquidity management policy than insolvency condition will never come in the business. We have some example, Lehman Brother collapse, why? Because of improper management of fund and wrong investment decision, continuous illiquid situation surged insolvency. Answer 4.6 No, Answer 4.7 No, because Liquidity deals with short term debts and Solvency deals with long term debts. So there is not any relation between liquidity and solvency. 5 Do Liquidity Risk Management Policy help organisation to build trust and Reputation? If yes than how? Answer 5.1 I think yes, Liquidity can defiantly make an impact on trust and reputation of the company. In todays business world, all investors and stakeholders want to invest on those companies which are doing well by their business financial transaction. It means on time payment to creditors, dividend to shareholders, interest to banks and other loan holders, even wages to staff also. Liquidity helps organisation to pay its debts on time when it fall due. So Liquidity can do impact on trust of stakeholders and reputation in business world. Answer 5.2 Yes, Business transaction and in time payments in business always increase business reputation in the market and trust of stakeholders which do business with company. Reputation can also build up by other tools of business but trust of shareholders and stakeholders can only build by regular business. Answer 5.3 Yes, it definitely helps organisation to build trust and reputation.