Cash Flow at Risk (CFaR) is a financial metric used to quantify the risk to a firm's cash flows over a specific time period under normal market conditions. It leverages the concept of Value-at-Risk (VaR) to estimate the potential deviation in cash flows, helping firms to manage liquidity risk and financial planning.
Liquidity risk refers to the potential risk that an investment cannot be liquidated during its life without significant costs or losses. This is particularly relevant in lending operations, where the ability to quickly convert an asset to cash is crucial.
Measurable possibility of losing or not gaining value. Risk is differentiated from uncertainty, which is not measurable. Various types of risk include actuarial risk, exchange risk, inflation risk, interest rate risk, inventory risk, liquidity risk, political risk, repayment (credit) risk, risk of principal, systemic risk, underwriting risk, and unsystemic risk.
An inquiry set up by the Financial Reporting Council (FRC) in 2011 to examine the reporting of liquidity risk and other factors that may threaten the viability of an entity as a going concern, triggered by the financial crisis of 2007-08.
