The Effect of Income Volatility on Liquidity Risk and Default Risk

Abstract

This research tests the relationship between Income Volatility and Liquidity and Default Risks. At first we clarified the Problem, Questions, Objective, Hypothesis, Methodology, Measurements that shows what the dependent and independent variables are, and Limitations of the research. Chapter two discussed in details what is Income Volatility, Liquidity Risk, Default Risk, and the relationship between both dependent and independent variables in the literature review. Moving to chapter three, we ran three different tests which are Regression, Descriptive, and Pearson’s Correlation Analysis to prove our hypotheses. The tests state that Income Volatility cannot be used to predict the Liquidity Risk of Egyptian Banks, and also states it’s a main determinant of Default Risk and can be used to predict the Egyptian Bank’s Default Risk.