Abstract:
In our modern, globalized world, companies operate in dynamically changing
environment. The development of the internet made information more accessible and resulted in new areas of competition. Nowadays, companies in order to offer the best products for the lowest price can seek competitive advantage in the field of finance. Through the effective financial management, the liquidity risk can be reduced without blocking huge amounts of cash as a reserve for eventual shortfalls. As a result, companies can manage their assets more effectively and earn a greater rate of return. There are many different factors influencing the liquidity risk but not all of them can be controlled. However, in finances three significant factors can be managed directly through the financial instruments on the financial market. Those are: commodity risk, foreign exchange risk and interest rate risk. Not all companies are exposed directly to those three kinds of risk. What is more, even companies which are influenced by those three risk factors, will have a different importance of each factor. Interest rate risk depends inter alia on a debt to equity ratio, debt duration, debt structure, debt interest rate. Foreign exchange risk is contingent on the share of cash flows realized in foreign currencies, the type of foreign currencies and so on. Commodity risk both of a products sold and raw materials is connected with every type of business, nevertheless not all industries have the instruments to manage this kind of risk.