Some First Principles Of A ‘Dollar Short’

Again, the size of your reserves reflects, and is proportional to, your potential need for funding. You can’t accumulate that many unless you have a similarly arrayed “dollar short.” The bigger the stockpile the more potential for it to get out of hand if things go the wrong way (usually on the self-reinforcing cycle of rising risk perceptions feeding volatility, or what we might call in different times and situations a “run”).

 

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