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CAIIB ABM Module A & C By Ashish Sir Class 13
What is the primary objective of Asset Liability Management (ALM) in banks?
ALM aims to manage the risk arising from mismatches between assets and liabilities in terms of maturity, interest rate, and liquidity to protect net interest income and market value of equity.
What is the concept of 'Gap Analysis' used in interest rate risk management?
Gap = Rate-sensitive assets minus rate-sensitive liabilities over a period
What does the term 'Duration Gap' signify in ALM?
Duration Gap is the difference between the weighted average duration of assets and liabilities; a positive gap indicates the bank is asset-sensitive, meaning rising interest rates will reduce the market value of equity.
What is a Positive Gap in ALM and what does it imply for rising interest rates?
Positive gap means assets reprice faster; NII rises when rates increase
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