Monday, October 13, 2008

'Every country has gone through liquidity crises in the past'

Understanding liquidity crunch

What is `liquidity crunch' that is in great focus these days? Why is it a problem? Where are its roots? What is its magnitude? Do we have examples of such a crisis in our history books? These and more questions are currently top on the minds of most of us.
"Liquidity crunch is a situation where it becomes considerably difficult (and expensive) to raise funds for banks as well as for businesses," explains Mr N. Muthuraman, former Director-Ratings, Crisil Ltd. "At present, we are witnessing liquidity crunch both in global and Indian credit markets, though for very different reasons," he adds, during the course of a recent email interaction with Business Line.

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