Liquidity and Operational Risk for companies

Liquidity and Operational Risk for companies

Liquidity risk
Liquidity risk is defined as the inability of a company to execute transactions, the inability to meet financial obligations or fund operations due to a lack of liquid assets or the inability to sell assets quickly without significant loss.

Liquidity risk includes those risks classified into the following:

Asset liquidity risk: These are the risks that occur as a result of a shortage in the number of sellers or consumers, in exchange for sales orders and purchase orders.
Liquidity financing risk: These are the risks resulting from the company's inability to meet its immediate short-term obligations, such as due monthly bills.

Operational risks
Operational risk is defined as the risk resulting from operational failures, such as mismanagement, technology errors, human errors or external events that can result in financial losses. It includes risks associated with fraud, errors, legal and regulatory compliance, business disruptions, cyber-attacks and supply chain disruptions.

Operational risks are classified into the following:

Model risk: Model risk arises as a result of strategic decision making relying on insufficient and inaccurate business models.
Fraud risk: These are unexpected financial losses as a result of a member of the organization committing theft or embezzlement.