1, Asset-Liability

Management

In banking, asset and liability management (often abbreviated ALM) is the practice of managing risks that arise due to mismatches between the assets and liabilities (debts and assets) of the bank. This can also be seen in insurance. Banks face several risks such as the liquidity risk, interest rate risk, credit risk and operational risk. Asset liability management (ALM) is a strategic management tool to manage interest rate risk and liquidity risk faced by banks, other financial services companies and corporations. Banks manage the risks of asset liability mismatch by matching the assets and liabilities according to the maturity pattern or the matching of the duration, by hedging and by securitization. Much of the techniques for hedging stem from the delta hedging concepts introduced in the Black–Scholes model and in the work of Robert C. Merton and Robert A. JarrowModern risk management now takes place from an integrated approach to enterprise risk management that reflects the fact that interest rate risk, credit risk, market risk, and liquidity risk are all interrelated. The Jarrow-Turnbull model is an example of a risk management methodology that integrates default and random interest rates significance:-

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securities market and forex market. Treasury basically deals with shortterm cash flows(less than one year). . . Deploying surplus funds in securities which have low risk and earn profits. Due to the relaxations of RBI in Foreign Direct Investment (FDI).6. Banks are permitted a larger limit in terms of their net worth. Fund management includes maintaining adequate cash balances to meet the daily requirements. . Managing market risk for the entire bank. and overseas borrowing and lending. The functions of integrated treasury are not restricted to traditional functions. Integrated treasury came into existence as a result of financial reforms. which involves meeting CRR and SLR obligations. the most important being the deregulation of rupee and partial convertibility of rupee. . Assisting the banks in Asset-Liability Management (ALM). The major functions of integrated treasury are as follows: . Rupee is freely convertible on current account. . Performing reserve management. Providing effective and efficient merchant services. but investment in some securities exceeds more than one year. Function of integrated treasury of bank? Answer: Treasury function was restricted to fund or liquid management. Performing global cash management. rupee is now partially convertible on capital account. Improving the profit by exploring market opportunities in money market. . . implementing the surplus funds in other operations. The treasury departments in banks are responsible to meet the Cash Reserve Requirement (CRR) and invest the funds in securities under Statutory Liquid Ratio (SLR). sourcing the funds to even the gaps in cash flow.

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