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150 MANAGING LIABILITIES Mathematical models and simulation provide a great deal of assistance in studying current account deficits and the analysis of factors characteristic of corporate governance. Investing in equi- ties demands the ability to analyze an entity’s intrinsic value (see Chapter 9) and ignore emotion when stocks become volatile. The best strategy is to follow a company, its products, and its instru- ments closely and make a long-term commitment. Only when fundamentals change is it wise to sell; but it is worth monitoring prices all of the time. Even stop-loss systems considered to be a rather conservative approach are geared toward port- folios, not the typical investor. Sell limits can be useful for locking in gains but also may prompt premature selling of equities that have considerable volatility, such as technology stocks. With all these constraints in mind, one may ask the question: Why does market liquidity matter that much? For one thing, investors avoid illiquid markets and illiquid instruments. Also, liquid equity markets allow investors to sell shares easily while permitting firms access to long-term cap- ital through equity issues. Many profitable investments require a long-term commitment of capital. MARKING TO MARKET AND MARKING TO MODEL Liquidity risk and price risk due to volatility are part of market risk. Both are fundamental elements in the business of every financial intermediary. The liquidity risk faced by a credit institution may be its own or that of its major client(s) in some country and in some currency. Clients who are unable to meet their financial commitments are credit risks, but they also create liquidity problems. Price risk affects earnings. It may arise from changes in interest rates, currency rates, equity and commodity prices, and in their implied volatilities. These exposures develop in the normal course of a financial intermediary’s business. Therefore, an efficient risk control process must include the establishment of appropriate market controls, policies, and procedures permitting a rigorous risk oversight by senior management. Exhibit 8.3 Deficit from Trade of Physical Goods and Current Account Deficit of the U.S. Economy 151 Market Liquidity and the Control of Risk Liquidity must be subject to a control process that has upper and lower limits. If low liquidity is a danger signal, for different reasons, so is excess liquidity (see Chapter 5) or liquidity surplus to an institution’s needs. Excess liquidity can be invested in financial markets for better profits than those provided by cash. We can invest excess liquidity without taking inordinate risks only when we are able to monitor our liquidity requirements steadily and prognosticate those that are coming. The able use of advanced technology permits investors to track some of the risks described in the above paragraphs. We can do so through real-time systems and the quantification of changes in value of assets and liabilities. This analysis should be accomplished in absolute terms and as a func- tion of market volatility. There are two ways to do so: 1. Through marking-to market instruments 2. Through marking-to-model instruments Marking-to-market is double for those instruments in our portfolio for which there is an active market. For instance, bid/ask is a dynamic market-driven parameter which makes it possible to gauge the market price for a given product. There are a couple of problems with marking to market. One of them is that quite often the prices are really estimates that prove to be too optimistic or plainly biased. This is the case with the volatil- ity smile, where traders think that volatility will be benign and therefore underprice the instruments they deal with. The second problem is that the majority of over-the-counter trades are esoteric, developed for the counterparty, or too complex to price in an objective manner. Even more involved is their steady repricing. Derivative financial instruments, particularly those which have been personalized, fall into this class. Their valuation can be achieved by marking to model, duly appreciating that models are approximations to reality and frequently contain assumptions that may not always hold. Marking to model also has its limitations. One of them is the lack of skill to do the modeling. Another is that the assumptions we make are not always sound; still another is oversimplification of algorithmic approaches. Few institutions appreciate that it is not enough to model the instrument. We also must study the volatility and liquidity of financial markets through historical analysis. We should take and analyze statistics of market events including both: • Normal market behavior • Squeezes, panics, and crashes The model should work on the premise that liquidity tends to follow different patterns, falling from peak to trough and then increasing again, over a fairly regular time span. The theory under- pinning this approach dates back to the writings of economists Irving Fisher and Friedrich Hayek. The algorithm works on the basis that too much money chasing too few financial assets causes their prices to rise, while tighter liquidity produces the opposite effect. Globalization has seen to it that this concept of volatility in market liquidity became more com- plex, particularly for financial institutions and industrial companies working transborder. Liquidity issues are not only domestic; they are also global. Economists argue which matters more, global liq- uidity or domestic liquidity. TEAMFLY Team-Fly ® 152 MANAGING LIABILITIES Because financial markets of the Group of Ten nations are networked, psychology aside, stock market prices are increasingly being driven by global liquidity. Cross-border investments have left an increasing proportion of shares in foreign hands. But that does not mean that domestic factors play only a minor role. Among other reasons why domestic liquidity remains a key player is that economies around the world are at different stages of the business cycle. It is also good to notice that: • The real economy lags nine months or so behind the liquidity cycle. • An institution’s liquidity may be, up to a point, uncoupled from that of the economy as a whole. Many reasons are behind the bifurcation in these statements. A few examples are excessive leverage, imprudent management, and poorly followed-up commitments. A more thorough exami- nation of the behavior of the bank in the market requires understanding of its trading mandate and risks being taken at all levels of transacting business. There are a great deal of other critical ques- tions as well, such as clear levels of authority, not only in normal times but also in times of crisis like escalation events: • Level of sophistication of internal auditing • Existence of funding/liquidity limits • Experience of management and trading staff Models are not supposed to solve these problems. In times of crisis, much will depend on the maturity of the whole system of management and its ability to perform steady review and monitor- ing using rapid-response feedback loops. Discovery action by senior management greatly depends on critical analysis of what is working and what is not working as it should. Some of the cases I have seen involved potential loss not constrained in a rigorous manner or measured at an acceptable level of accuracy; lax management supervision of liquidity issues; and the “feeling” that if matters are left to their own devices, they will take care of themselves. For a money center bank, a liquidity crisis could happen anywhere in the world because large financial institutions typically have: • A global book • Complex portfolios • Overseas traders who are not well controlled • A universal asset base that is not always thoroughly analyzed In general, when the analytical part is wanting, the results of marking to model will be abysmal. I have seen cases where the modeling constructs were so sloppy and untested that the results obtained ranged from chaos to uncertainty. Also the data being used were neither accurate nor obtained in real time. 5 Those institutions whose operations are characterized by overnight trading, long communication lines, incompatible information technology systems, and a great deal of internal politics have to be the most careful with their models—and with their management. These are usually big banks. Small banks also have constraints, such as the limited number and skills of personnel, lack of specialists in 153 Market Liquidity and the Control of Risk some of the areas they operate, small budgets for information technology, and the fact that because the senior people actually do much of the business, controlling the resulting exposure is more difficult. LIQUIDITY PREMIUM AND THE CONTROL OF EXCESS LIQUIDITY Whether debt or equities, financial instruments are liquid if they can be easily sold at a fair market price. Traders would consider a liquid security, bought or sold, as one characterized by little or no liquidity premium. A problem, however, arises when we try to describe liquidity risk in terms of thresholds in liquidity premium, which often are used to explain different price effects. Liquidity premium exists because a given change in interest rates will have a greater effect on the price of long-term bonds than on short-term debt. With long-term bonds, there is more of an oppor- tunity for gains if interest rates fall and greater risk for losses if interest rates rise. At the same time, even if a certain premium were solely a function of market liquidity, it could at best measure the perceived value of liquidity but not other factors, such as transaction size. Transactions in small amounts and in large blocks trigger the inclusion of an extra liquidity pre- mium in the price, which does not necessarily occur with the classic notion of a liquidity premium. This extra premium suggests that the risk of a transaction should not be measured independently from its size, because doing so would be equivalent to assuming constant market liquidity regard- less of fundamentals. In academic circles and among some investment bankers, the liquidity premium theory often is used as an explanation of the term structure of interest rates. By supplementing investors’ expecta- tions with a liquidity premium, the theory aims to explain the prevalence of upward- and downward- sloping yield curves. Investor uncertainty is behind such movement, as shown in Exhibit 8.4, with two 30-year Treasury yield curves in consecutive months at the end of 1997. Analysts try to explain: • Why the yield curve is generally downward-sloping when interest rates are high • Why the opposite is generally true when interest rates are low • Which fundamentals underpin a flat yield curve A good deal of challenge lies in the fact the liquidity preference theory makes no significant con- tribution to the influence of forward rates on the existing term structure. To do so requires the abil- ity to estimate relevant liquidity premiums accurately, which is not easy, especially in a dynamic market. To make matters more complex, the magnitude of the risk premium is itself variable, and it can depend on existing and projected economic conditions and investor psychology. For this reason, its study requires much more than a textbook sort of algorithm, which, for instance, states that the interest rate on a long-term bond will be equal to: • The average of the short-term interest rates that are expected to prevail over the life of the bond • Plus a liquidity premium that investors must be paid to convince them to hold the bond in the longer term These two points express a simplification that is used quite often. Based on this algorithm, the liquidity premium theory argues that investors are not indifferent to investments of different 154 MANAGING LIABILITIES maturities; they have a preference for short-term instruments because of their superior liquidity. (See also Chapter 7 on the advantages of liquid instruments.) Other things being equal, short-term instruments have less interest-rate risk because their prices change more slowly for a given change in interest-rate levels. Therefore, investors may be willing to accept a lower return on short-term securities. Again, everything else being equal, investors would like to be paid something extra for holding long-term securities, but this liquidity premium must be estimated carefully, accounting for the fact that “other things” may not be equal. Even if future spot rates are expected to be equal to current spot rates, there may be an upward- sloping yield curve because of a liquidity premium. At the same time, liquidity has a cost associat- ed with it, which means that price liquidity is not a one-way street. Therefore, we need methods, procedures, and models that permit: • Experimentation • Optimization • Control of results For every financial institution and industrial company, optimization decisions must be based on policies established by the board and on internal tools that can be used for analysis and evaluation of alternatives. Typically, such an approach requires the study of the company’s liquidity require- ments along a maturity ladder and national economic data that are steadily updated to reflect liq- uidity conditions, as well as a view of the global market. To help themselves in optimization studies, financial institutions use indices of national data on money supply growth and the evolution of interest rates in all the countries where they operate, as Exhibit 8.4 Within a Month, Investor Uncertainty Changes the Yield Curve of U.S. Treasury Bonds 155 Market Liquidity and the Control of Risk well as on indices weighting heavily on the global market. The metrics employed attempt to meas- ure volatility in liquidity as well as excess liquidity, where it exists. In this case, excess liquidity is defined as: • Money that is not spent directly on goods and services. • Therefore, it can be plowed into financial assets, propelling market activity. For instance, in 1995 and the years immediately thereafter, the sharp rise in this index signaled a significant increase in the amount of excess money available. This increased availability was most likely due to the fact that central banks in the United States and Europe were cutting their interest rates, while the Bank of Japan was pumping money into the Japanese economy in a bid to revive it. One way of looking at the liquidity cycle is that it follows a pattern whereby, at different points, different types of assets tend to outperform others. When there has been a surge in liquidity in the United States and other developed countries, their stock markets have been the first to benefit. In general, less developed countries and their financial assets also benefited. From 1995 to 1997, emerging markets tended to lag behind the G-10 ones in the investment cycle, even when they absorbed inordinate amounts of money, which led to the crash of East Asian countries of August to December 1997—as the latter were overloaded with foreign funds in search of quick profits. Quick bucks are not what companies and investors should look for, because invariably such a policy leads to disaster. MATURITY LADDER FOR LIQUIDITY MANAGEMENT Today there exists no global supervisory authority that can look into international monetary flow. This breach in the supervisory armory, as far as global markets are concerned, risks bringing them to the breaking point. The International Monetary Fund (IMF) usually acts after the fact, usually in a fire department’s role. While there has been a great deal of discussion regarding giving the IMF new powers, with a preventive authority associated with it (the so-called New Bretton Woods agree- ments), this has not happened yet. 6 The fact that there is no global gatekeeper for international money flows and liquidity increases the scope of focused liquidity management systems and procedures within every financial institu- tion. Better management usually happens through the institution of maturity ladders, which permit the study of net funding requirements, including excess or deficit of liquidity at selected maturity brackets. A study of maturity ladder can address a coarse or a much finer grid. I personally advise the lat- ter. In each bucket, the study is typically based on assumptions of future behavior of cash inflows and outflows—the latter due to liabilities, including off–balance sheet items. By dividing future commitments into a finite maturity ladder, we are able to look more clearly into future positive and negative cash flows. (See Chapter 9.) • Positive cash flows arise from maturing assets, nonmaturing assets that can be sold at fair value, and established credit lines available to be used. • Negative cash flows include liabilities falling due, contingent liabilities that can be drawn down, maturing derivative instruments, and so on. 156 MANAGING LIABILITIES A maturity ladder is dynamic and needs to be updated intraday as new trades are executed. In developing it, we must allocate each cash inflow or outflow to specific calendar date(s), preferably starting the first day in the bracket, but also accounting for clearing and settlement conventions we are using that help to determine the initial point. The best policy is to use conservative estimates for both cash inflows and outflows—for instance, accounts receivables, other money due, liabilities falling due, repayment options, possible contingencies, and so on. In each period, this calculation leads to an excess or deficit of future liquidity. The computation of positive and negative excess liquidity is by no means the end point. The resulting funding requirements require senior management to decide how they can be met effective- ly. It is always wise to account for a margin of error. Such analysis might reveal substantial funding gaps in distant periods, and solutions must be found to fill these gaps. This can be accomplished by: • Generating additional cash flows • Influencing the maturity of transactions to offset the gap(s) It is always wise to act in time to close the gap(s) before it (they) get too close or too wide. Doing so requires a more rigorous analysis of liabilities and assets, because having sufficient liquidity depends in large measure on the behavior of positive and negative cash flows under different con- ditions. Hence the need to do what-if scenarios and to employ real-time financial reporting. (See Chapter 6.) Going from the more general to the more specific, one of the scenarios being used is based on general market crisis, where liquidity is affected at all credit institutions, in one or more markets. The basic hypothesis is that perceived credit quality would be king, so that differences in funding access among classes of financial institutions would widen, as will the interest rate of their debt against benchmark Treasuries. A more limited version of this scenario, in terms of a spreading liquidity crisis, is one that con- siders that liquidity problems remain confined to one bank or a specific group of banks. This sce- nario also provides a worst-case benchmark, but one of more confined aftermath. Depending on the extent of such an event, it could be that some of a bank’s liabilities are not rolled over or replaced and have to be repaid at maturity. This obliges the bank to wind down its books to some extent; or it might bring up specific problems not related to liquidity proper. A more favorable scenario is one that establishes a benchmark for what is assumed as basically normal behavior of balance cash flows in the ordinary course of business, with only some minor exceptions that oblige a closer look at debt markets. In this case, the goal is to manage net funding requirements in the most economical way while avoiding being faced with large needs for extra cash on a given day. A sound strategy is that of countermeasures designed to smooth the impact of temporary constraints on the ability to roll over liabilities. Theoretically, all banks should be doing maturity ladder computations and scenario analyses. In fact, however, very few—only the best-managed ones—are doing so. The others either lack skills for such exercise or even fail to appreciate the need to control their liabilities exposure. If the con- cept of closing their liabilities gaps was not alien to them, they would not fail at the rate they do because of the combined effect of assumed risks with loans and derivatives losses—as was the case with the Bank of New England (BNE) among others. At the end of 1989, when the Massachusetts real estate bubble burst, BNE had $32 billion in assets and $36 billion in derivatives exposure (in notional principal). 157 Market Liquidity and the Control of Risk To keep systemic risk under lock and key, the Federal Reserve Bank of Boston took hold of the Bank of New England, replaced the chairman, and pumped in billions in public money. Contrarians said this was like throwing good money after bad money, but most financial analysts saw this sal- vage as necessary because the risk was too great that a BNE collapse might lead to a panic. On $36 billion in notional principal amount, BNE had $6 billion in derivatives losses, a ratio of 1:6. The Bank of New England was clogged by regulators in January 1991—at a cost of $2.3 billion. At that time its derivatives portfolio was down to $6.7 billion in notional amount—or roughly $1 billion in toxic waste, which represented pure counterparty risk for those institutions and other companies that traded in derivatives with BNE. This is a good case study because it demonstrates how imprudent management may be in assum- ing risks. Because a credit institution’s future liquidity position is affected by factors that cannot always be forecast with precision, assumptions need to be made about overcoming adverse condi- tions in financial markets. Typically, such hypotheses must address assets, liabilities, derivatives, and some other issues specific to the particular bank and its operations, including: • Cash inflows • Cash outflows • Discounted cash flows by maturity ladder Concepts underpinning these items and the tools necessary are discussed in more detail in Chapter 9 in conjunction with cash management. Here, I wish to stress the importance of estab- lishing in a factual and documented manner the evolution of a bank’s liquidity profile under differ- ent scenarios, including the balance of expected cash inflows and cash outflows in every maturity bracket and at selected sensitive time points. Both short-term and long-term perspectives must be considered. Most credit institutions do not manage in an active way their funding requirement over a period longer than a month or so, espe- cially in banks active in markets for longer-term assets and liabilities. These banks absolutely need to use a longer time frame. The methodology we choose and apply always must correspond to the business we make. ROLE OF VALUATION RULES ON AN INSTITUTION’S LIQUIDITY POSITIONS At the beginning of the twenty-first century, banking and financial services have become a key glob- al battleground, with the most important financial battles fought off-exchange. This globalized envi- ronment develops by involving banks, nonbanks, and corporate treasuries in bilateral agreements that, for the most part, lack a secondary market. Increasingly more powerful tools are used for: • Rapid development of new instruments • Optimization of trades • Online execution of complex transactions and their confirmation What (regrettably) is often lacking is the a priori risk analysis and, in many cases, the a posteri- ori reevaluation of exposure. Yet, to be able to survive in an increasingly competitive market, let 158 MANAGING LIABILITIES alone to make a profit, we must not only follow a risk and return approach but also develop and test different scenarios. Old-style approaches that do not provide for experimentation can: • Give false signals about the soundness of transactions. • Create perverse incentives for banks to take on disproportionate and/or concentrated risks. Much of the inertia in living with one’s time comes from lack of experience in the processes dis- cussed here and in Chapter 7. Back in 1996, critics of the BIS Market Risk Amendment 7 contend- ed that the costs to banks of implementing its clauses, including the value-at-risk (VAR) model, would be out of proportion to any benefit they, or the system, might receive. The Amendment, they said, “would engender inefficiency in financial institutions” and would “encourage disintermedia- tion.” In the years since, all these negative arguments proved to be false. Contrary to what its critics were saying, the 1996 Market Risk Amendment by BIS allowed banks to use superior methods of risk measurement in many circumstances. In 1999 the new Capital Adequacy Framework by BIS set novel, more sophisticated capital adequacy standards. Based on this framework, banks should not only establish minimum prudential levels of liquidity but also experiment on a band of fluctuation within which each institution can: • Adapt itself and its operations • Receive warning signals and act on them Both the amount of capital a bank needs and its liquidity position should be related to the value it has at risk. Algorithmic and heuristic solutions 8 must incorporate the uncertainty about future assets and liability values and cash added (or subtracted) on each side of the balance sheet because of projected events. Such a value-added approach to risk management can be served by disaggregating risks by type across all positions and activities and by evaluating the likelihood of spikes in exposure and reag- gregating risk factors by taking into account reasonable estimates of correlations among events. In contrast to a static approach, the suggested methodology requires: • Appropriate definition of dynamic parameters • The ability to validate the output of models being used Critical to a successful control of exposure is the adoption of accounting, financial accounting, and disclosure practices that reflect the economic reality of a bank’s business and provide sufficient information to manage assumed responsibilities in an able manner. Due attention should be paid to the fact that: • Risk management feeds into capital allocation by way of management decisions about balanc- ing risk and return, • Capital adequacy is calculated in a way able to provide a buffer against losses that may be unex- pected, and • Adequate liquidity is available within each time bracket of the maturity ladder for all expected events, with a reserve for unexpected events. 159 Market Liquidity and the Control of Risk This process can be helped if control limits applied to the trading book and banking book are tracked in real time, covering current positions and new transactions as they happen, and address- ing all items—both on-balance sheet and off-balance sheet. The technology solution we adopt must reflect the fact that the trading book is typically characterized by the objective of obtaining short- term profits from price fluctuations. For both internal and regulatory financial reporting purposes, instruments in the trading portfo- lio must be stated at fair value. According to the definition given by the Financial Accounting Standards Board (FASB) and International Accounting Standard (IAS) 32, fair value is the amount at which a financial instrument could be exchanged in a transaction entered into under normal market conditions between independent, informed, and willing parties, other than in a forced or liquidation sale. NOTES 1. Henry Kaufman, On Money and Markets (New York: McGraw-Hill, 2000). 2. Paul A. Samuelson, Economics. An Introductory Analysis (New York: McGraw-Hill, 1951). 3. For a detailed discussion on monetary base and money supply, see D. N. Chorafas, The Money Magnet. Regulating International Finance and Analyzing Money Flows (London: Euromoney Books, 1997). 4. William Greider, Secrets of the Temple (New York: Touchstone/Simon and Schuster, 1989). 5. For real-life modeling failures, see D. N. Chorafas, Managing Risk in the New Economy (New York: New York Institute of Finance, 2001). 6. D. N. Chorafas, New Regulation of the Financial Industry (London: Macmillan, 2000). 7. D. N. Chorafas, The 1996 Market Risk Amendment. Understanding the Marking-to-Model and Value-at-Risk (Burr Ridge, IL: McGraw-Hill, 1998). 8. D. N. Chorafas, Chaos Theory in the Financial Markets (Chicago: Probus, 1994). [...]...PART THREE TE AM FL Y Cash Management Team-Fly® CHAPTER 9 Cash, Cash Flow, and the Cash Budget Cash is any free credit balance in an account(s) or owed by a counterparty payable upon demand, to be used in the conduct of business Cash management is not a subject that can be attacked without a road map The road map is the financial plan that clearly states objectives, need(s) for cash, and timing Only then... the difference between 1 76 Cash, Cash Flow, and the Cash Budget what they paid for a firm and the lower book value Goodwill is amortized over a long period, usually 40 years, and requires no cash outlay Based on this definition of cash flow, the algorithm for net cash flow yield is: Net Cash Flow Yield = Cash Flow + Interest Expense Interest expense is added back to the simple cash flow to get the broadest... the cash account • • Premiums due are credited to the cash account, and Default payments are debited to the cash account Cash flow from assets and operations defines a company’s liquidity as well as its ability to service its debt Properly done, cash flow analysis succeeds in exposing a firm’s mechanism in sustaining its liquidity position, therefore in facing its financial obligations As such, cash. .. asset, evidently including cash Another important issue to keep in mind is that: • Current assets must be financed, just as fixed assets must be 164 Cash, Cash Flow, and the Cash Budget • How this financing is done can be determined by examining the flow of cash in the operations of a company This is an integral part of cash management based on the notion of the cash cycle and its effects on balance... used by credit institutions and corporate treasuries use this segregation Cash in banks is more easily verified than cash on hand Any situation where the amount of cash in bank(s) as shown on the balance sheet is greater or less than the sum actually on deposit calls for an immediate explanation 172 Cash, Cash Flow, and the Cash Budget On a number of occasions cash on hand is easily misrepresented,... regular and ad hoc intervals Clearly stated policies serving this purpose of performance evaluation are a must CASH FLOW, OPERATING CASH FLOW, AND FREE CASH FLOW This chapter has referred frequently to cash flow But which cash flow? There is not one but several types, which must be examined prior to discussing discounted cash flow, intrinsic value, and their use for managerial evaluations and decisions Cash. .. hypotheses, and evaluate likely return on investment from projected allocations of capital and human resources These models permit a documented approach to financial planning All cash flows should be considered, along with their influence on a financial plan, and they should be discounted at the opportunity cost of funds As we will see, cash management is indivisible from financial planning In fact, cash management. .. Derivatives Risk (Burr Ridge, IL: Irwin Professional Publishing, 19 96) D N Chorafas, Reliable Financial Reporting and Internal Control: A Global Implementation Guide (New York: John Wiley, 2000) An Owner’s Manual (Omaha, NE: Berkshire Hathaway, 19 96) 182 CHAPTER 10 Cash on Hand, Other Assets, and Outstanding Liabilities Cash is raw material for banks, and they get into crises when they run out of it Take as an... a cash debit and ends with a cash credit Such debits and credits 175 CASH MANAGEMENT Exhibit 9 .6 Components of Profitability create the basis of a company’s cash flow and its computation • • Productive resources are acquired by bargaining transactions They are used to create products that are sold to the market through other transactions Within this cyclical perspective of financing, production, and. .. decide if cash resources permit the execution of the plan as is or if revamping it is preferable As stated in connection with liabilities and liquidity, the financial plan itself must be factual and documented as well as complete and detailed Most important, it must be capable of being executed Computers and mathematical models are used to evaluate alternative financial plans, experiment on likely cash . 163 CHAPTER 9 Cash, Cash Flow, and the Cash Budget Cash is any free credit balance in an account(s) or owed by a counterparty payable upon demand, to be used in the conduct of business. Cash management. indivis- ible from financial planning. In fact, cash management is a part of the definition of the financial plan regarding liquidity management (see Chapter 7). Cash at the bank is kept in a cash account happened yet. 6 The fact that there is no global gatekeeper for international money flows and liquidity increases the scope of focused liquidity management systems and procedures within every financial