Treasury - Chapter 1

asset liability management

is a financial technique that can help companies to manage the mismatch of asset and liability and/or cash flow risks. The mismatched risks are due to different underlying factors that cause the assets and liabilities to move in different directions with different magnitudes. ________ risk is a leveraged form of risk. The capital of most financial institutions is small relative to the firm’s assets or liabilities, so small percentage changes in assets or liabilities can translate into large percentage changes in capital.

gap analysis

identify mismatches

duration analysis

measure sensitivity to interest rates

monte carlo simulation techniques

appropriate to address the increasingly complex financial markets.

ALM in banks

_________ is paramount due to the unique nature of a bank's balance sheet, often characterized by short-term liabilities (like customer deposits) and long-term assets (like loans).

ALM analyst

responsible for analyzing the organization's financial data and market trends to make informed predictions about the future financial standing. They work closely with senior staff to develop strategies for managing the company's assets and liabilities.

ALM analyst

This role requires a strong understanding of financial modeling and risk management principles, along with the ability to analyze large sets of data.data analysis & modeling

ALM manager

oversees ALM operations and is responsible for managing the organization's assets and liabilities to achieve optimal financial performance. They develop and implement investment strategies, liaise with other financial teams, and align the ALM process with the organization's overall risk management framework.

ALM manager

They also ensure adherence to regulatory guidelines. This role requires excellent strategic planning skills and a comprehensive understanding of finance and risk management. Strategy, compliance, and leadership

ALM trader

trades and hedges the organization's balance sheet to manage and mitigate associated risks. They analyze market trends and financial landscapes, identifying and seizing profitable trading opportunities in alignment with the institution's risk management strategies. 

ALM trader

______ combine their analytical prowess with decision-making skills to ensure compliance with regulatory guidelines while steering the organization towards financial stability and growth.

risk manager

play a critical role in ALM. They identify, analyze, and mitigate potential risks that could affect the organization's financial health, which often includes risks related to asset and liability management.

risk manager

Their responsibilities include developing risk management processes, creating risk reports, and advising on risk mitigation strategies. They're also tasked with staying updated on market trends and regulations that might affect the organization's risk profile.

reserves

are funds that banks keep on hand to meet unexpected withdrawals or to cover potential losses. These ______ are an essential component of a bank's balance sheet, and they provide a cushion against financial shocks. Banks use ______ to ensure that they have enough cash on hand to meet the demands of their customers, and to protect themselves against potential losses.

LDR

The ____ represents the ratio of loans issued by a financial institution to the deposits it has on hand. As such, the _____ represents a key indicator of a financial institution's ability to meet the demands of its clients or credit and loans.

bank levy

A ______ is a legal process used by creditors to collect debts from a debtor's bank account.

bank run

A _______ occurs when a large group of depositors withdraw their money from banks at the same time.

federal funds rate

The _________, or the rate that institutions charge each other for extremely short-term loans, affects the interest rate that banks set on the money they lend.