Check your progress module d
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This document contains check your progress questions and answers from modules on balance sheet management, liquidity management, and interest rate risk management. Some key points: - Asset liability management (ALM) is required to minimize liquidity risk and market risk by matching assets and liabilities. - Liquidity management objectives are to ensure both profitability and liquidity by meeting deposit withdrawals and loan demands. A bank's liquidity position depends on sources of funds and anticipated future needs. - Interest rate risk arises from changes in interest rates that affect the market value of assets and liabilities. It can be managed by matching repriceable assets with liabilities and setting tolerance limits on interest rate sensitivity gaps.
Check your progress module d
- 1. MODULE D BALANCE SHEET MANAGEMENT Unit 20 Check Your Progress A. State Whether Following Statements are True or False. (a)Assets represent source of funds whereas liabilities denote the use of funds in a balance sheet. False (b)Deregulated environment has narrowed spreads of the banks. True (c)Asset liability management is only management of maturity mismatch and has no bearing on profit augmentation. False (d)Net Interest margin is also known as 'Spread'. True B. Fill in the blanks. 1.ALM is required to match the assets and liabilities to--------liquidity risk as well as market risk. {minimize} 2.Net Interest Margin is defined as net interest income divided by {Average total Assets} 3. The ratio of the shareholders funds to the total assets is called {economic equity ratio} 4.Liquidity is ensured by grouping the assets/liabilities based on their {maturities} . 5.The institution is in a position to benefit from rising interest rates when assets are than liabilities. {greater} ********************************************************************** UNIT 26 Check Your Progress A. Choose the correct answer 1. Objective of liquidity management is to: (a)Ensure profitability (b)Ensure liquidity (c)Either of two (d)Both Both 2. Banks need liquidity to: (a)Meet deposit withdrawal (b)Fund loan demands (c)Both of them (d)None of them Both of them 3. Adequacy of a bank's liquidity position depends upon: (a)Sources of funds (b)Anticipated future funding needs (c)Present and future earnings capacity (d)All of above All of above
- 2. B. Fill in the blanks. 1. The need to replace net outflows due to unanticipated withdrawal of deposits is known as ----- risk. Funding Risk 2. The need to compensate for non-receipt of expected inflows of funds is classified as----- risk. Time Risk 3. Call risk arises due to crystallisation of ___ . Contingent liabilities 4. Maturity ladders enables the bank to estimate the difference between------- and---------in predetermined periods. Cash inflows, cash outflows 5. Liquidity management methodology of evaluating whether a bank has sufficient liquid funds based on the behaviour of cash flows under the different 'what if scenarios is known as-----. Alternative Scenarios 6. The capability of bank to withstand a net funding requirement in a bank specific or general market liquidity crisis is denoted as----------------- . Contingency planning ************************************************************************* UNIT 27 Check Your Progress Fill in the blanks: 1. Changes in interest rates also affect the underlying value of the bank's assets, liabilities 2. Rise in interest rates decreases, increases the market value of that asset or liability. 3. The gap is the difference between the amount of assets and liabilities on which the interest rates are reset during a given period. 4. Mismatch occurs when assets and liabilities fall due for repricing in different periods. 5. The economic value of a bank can be viewed as the present value of the bank's expected net cash flows 6. A negative, or liability-sensitive gap occurs when liabilities exceed assets (including OBS positions) in a given time band. 7. Estimates derived from a standard duration generally focus on just one form of interest rate risk exposure, i.e.repricing risk 8. Interest rate risk can be managed by matching repriceable assets with repriceable liabilities. 9. Proliferation of NPA results in increasing maturity mismatch .
- 3. 10. The adverse impact on NiI due to mismatches can be minimised by fixing appropriate tolerance limits on interest rate senstitivity gaps.