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.
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Course Details


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Asset Liability Management – Crash Course
Asset Liability Management – Crash Course – EXCEL Examples


Course Contents

1. Introduction
2. Duration and Convexity
3. Value at Risk (VaR)

  • Variance Covariance Approach
  • Historical Simulation Method

4. ALM Risk Measurement Tools

  • Fall in Market Value of Equity
  • Earnings at Risk
  • Cost to Close
  • Rate Sensitive Gap
  • Price Sensitive Gap
  • Liquidity Gap
  • Net Interest Income (NII) at Risk
  • Duration Gap Analysis

5. Applications

  • Bank
  • Duration matching/ immunization
  • Pension Funds and Insurance
  • Portfolio dedication

6. Other Liquidity Risk Measurement Tools

  • Setting limits for liquidity risk
  • Cash flow mismatch or gap limits
  • Maturity Limits
  • Target Liquid Reserves
  • Concentration Limits
  • Contingent liability limit
  • Review
  • Exception handling
  • Contingency Funding Plan
  • General requirements for a liquidity contingency plan
  • Specific requirements for a liquidity contingency plan
  • Liquidity enhancement tactics
  • For Systemic crisis
  • For company specific crisis

7. Liquidity Management

  • Liquidity Ratios and Analysis
  • Current Ratio
  • Quick Ratio
  • Unused lines of credit
  • Borrowing/ Debt-to-Equity Ratio
  • Net Working Capital Ratio
  • Loan-to-Deposit Ratio
  • Loan- to- Asset Ratio


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Asset Liability Management – The ALM Crash course