Saving for a rainy day

Liquidity Risk

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Hubris may have been a crime in classical Athens, but the financial markets have their own ruthless way of punishing arrogance. As the market reacted to the Russian financial crisis in the third quarter of 1998, it took just days for previously profitable trading strategies at the hedge fund Long-Term Capital Management (LTCM) to unravel. Within a month, almost all the fund's $4.7 billion of assets had been wiped out.

It is now clear that traders had found themselves entangled in highly

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