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ALM is an essential and critical process for any organization that invests to meet its future cash flow needs and capital requirements. The traditional application of ALM primarily dealt with managing risks associated with interest rate changes. But today ALM has a much wider focus encompassing equity risk, liquidity risk, legal risk, currency risk and sovereign or country risk.
In this study note we will look primarily at interest rate risk (in particular interest rate mismatch risk) and liquidity risk.