Although ALM frameworks differ greatly among organizations, they typically involve the mitigation of a wide range is risks. Some of the most common risks addressed by ALM are interest rate risk and liquidity risk. Interest Rate Risk Interest rate risk refers to risks associated with changes to interest rates, and how changing interest rates affect future cash flows. Financial institutions typically hold assets and liabilities that are affected by changing interest rates. Two of the most common examples are deposits (assets) and loans (liabilities). As both are impacted by interest rates, an environment where rates are changing can result in a mismatching of assets and liabilities. Liquidity Risk Liquidity risk refers to risks associated with a financial institutionrsquo;s ability to facilitate itrsquo;s present and future cash-flow obligations, also known as liquidity. When the financial institution is unable to meet its obligations due to a shortage of liquidity, the risk is that it will adversely affect its financial position. To mitigate the liquidity risk, organizations may implement ALM procedures to increase liquidity to fulfill cash-flow obligations resulting from their liabilitiesOther Types of Risk Aside from interest and liquidity risks, other types of risks are also mitigated through ALM. One example is currency risk, which are risks associated with changes to exchange rates. When assets and liabilities are held in different currencies, a change in exchange rates can result in a mismatch. Another example is capital market risk, which are risks associated with changing equity prices. Such risks are often mitigated through futures, options, or derivatives.
A tank has three pipes, X, Y, and Z. X can fill the tank in 8 hours, Y can fill it in 12 hours, and Z can empty it in 6 hours. If X, Y, and Z are opened...
Two inlet pipes, each with the same capacity, can fill an empty tank 'A' together in 20 minutes. There is also an outlet pipe that can empty 40% of the ...
Pipe ‘A’ and pipe ‘B’, together can fill 20% of a tank in 6 hours while pipe ‘C’ takes 34 hours to empty it. ...
Tap A can fill a tank in 20 hours and tap B can emptied it is 25 hours. Tap A starts filling and they opened for 1 hour each alternatively in what time...
The difference between total SI earned on Rs 'P' at 18% p.a. for 3 years and total CI earned on same sum at 20% p.a. for 2 years when compounded annuall...
Pipe P can fill a tank in 12 hours, while pipe Q can fill the same tank in 20 hours. Both pipes are initially opened to fill an empty tank, but after 5 ...
Pipe 'A' can fill a water tank in 6 hours, while pipe 'B' requires 8 hours to do the same. When a third pipe, 'C', also contributes, the tank is filled ...
A tank has two inlet pipes and one outlet pipe. Pipe A can fill the tank in 4 hours, and Pipe B can fill it in 6 hours. The outlet pipe C can empty the ...
Two pipes A and B can fill a tank in 15 hours and 25 hours respectively. If both the pipes are opened simultaneously, in how much time the tank will be ...
A water tank has two holes. The 1 hole alone empties the tank in 9 minutes and 2nd hole alone empties the tank in 6 minutes. If water leaks out at a con...
