Stress test

Definition:

Tests conducted by federal supervisory agencies in early 2009 to estimate the range of possible future losses among US banks and determine if they have sufficient capital buffers to withstand the impact of a severe recession. The stress test involved two scenarios, a base scenario and a worst case scenario.

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Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Liquid

In context of securities, easily traded or converted to cash. In context of a corporation, the state of having enough cash and cash equivalents to cover short-term obligations.

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