CAIIB · BFM

Treasury and asset liability management

Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Bank Financial Management — CAIIB.

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One-liners from this chapter

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What is the primary objective of Asset Liability Management (ALM) in a bank?

The primary objective of ALM is to manage the risks arising from mismatches between assets and liabilities in terms of maturity, interest rate, and liquidity, while optimizing profitability.

What is the primary function of a bank's treasury department?

Managing liquidity, investments, and interest rate risk centrally.

What does the term 'Net Interest Margin' (NIM) represent in treasury management?

NIM is the difference between interest income earned on assets and interest paid on liabilities, expressed as a percentage of total earning assets, and is a key measure of a bank's profitability.

What is 'Negative Gap' in ALM and what does it signify?

Liabilities reprice faster than assets, risking margin squeeze.

What is the role of the Asset Liability Committee (ALCO) in a bank?

ALCO is the apex decision-making body responsible for balance sheet risk management, setting interest rate policies, managing liquidity, and reviewing the bank's overall ALM strategy.

What is the concept of 'Immunization' in ALM?

Matching asset and liability durations to neutralize interest rate risk.

What is 'Duration Gap' in the context of ALM?

Duration Gap is the difference between the weighted average duration of assets and the weighted average duration of liabilities, and is used to measure a bank's sensitivity to interest rate changes.

What is 'Funds Transfer Pricing' (FTP) in bank treasury?

Internal pricing mechanism allocating cost/benefit of funds between units.

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