Moreover, these instruments are difficult to price, as they are normally not actively traded and their short track period impinges on the reliability of cash-flow predictions and correlations with other financial assets. Second, the real-time nature of an increasing number of payment and settlement systems has heightened the importance of intraday liquidity risk management.
The recent improvements to the design of payment and settlement systems pose increasing challenges. For instance, eventual failures in time-critical payments and major liquidity shocks can be transmitted from one institution to another, both domestically or internationally. Moreover, institutions must ensure liquidity to meet their obligations on a timely basis throughout the business day.