Liquidity risk management in Islamic financeWritten by Abdul Karim Abdullah
Liquidity risk is a risk that commonly arises in conventional banking. It is the risk that a bank may be unable to meet its financial obligations due to a shortage of cash (liquidity). Liquidity risk arises from the way banks operate. Banks intermediate between parties with surplus capital (savings) and parties that are short of capital (borrowers). In this way banks help to channel funds from areas where a surplus of funds exists, to areas where a shortage of funds is experienced. They do this by borrowing from depositors and lending the same funds to borrowers, while keeping only a small amount of cash on hand to meet unexpected withdrawals.......... Download the full article in pdf attachment (below)
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Abdul Karim Abdullah @ Leslie Terebessy is an Assistant Research Fellow at IAIS Malaysia.