MODULE D

BALANCE SHEET MANAGEMENT

Unit 20
Check Your Progress
A. State Whether Following Statements are True or False.
(a)Assets represent source of funds whereas liabilities denote the use of funds in a
balance sheet. False
(b)Deregulated environment has narrowed spreads of the banks. True
(c)Asset liability management is only management of maturity mismatch and has
no bearing on profit augmentation. False
(d)Net Interest margin is also known as 'Spread'. True
B. Fill in the blanks.
1.ALM is required to match the assets and liabilities to--------liquidity risk as well as
market
risk. {minimize}
2.Net Interest Margin is defined as net interest income divided by {Average total
Assets}
3. The ratio of the shareholders funds to the total assets is called {economic equity
ratio}
4.Liquidity is ensured by grouping the assets/liabilities based on their {maturities}
__________________________________________________________.
5.The institution is in a position to benefit from rising interest rates when assets are
than liabilities. {greater}
**********************************************************************
UNIT 26
Check Your Progress
A. Choose the correct answer
1. Objective of liquidity management is to:
(a)Ensure profitability
(b)Ensure liquidity
(c)Either of two
(d)Both
Both
2. Banks need liquidity to:
(a)Meet deposit withdrawal
(b)Fund loan demands
(c)Both of them
(d)None of them
Both of them
3. Adequacy of a bank's liquidity position depends upon:
(a)Sources of funds
(b)Anticipated future funding needs
(c)Present and future earnings capacity
(d)All of above

All of above
B. Fill in the blanks.
1. The need to replace net outflows due to unanticipated withdrawal of deposits is
known as -----risk.
Funding Risk
2. The need to compensate for non-receipt of expected inflows of funds is classified
as----- risk.
Time Risk
3. Call risk arises due to crystallisation of
.
Contingent liabilities
4. Maturity ladders enables the bank to estimate the difference between------and---------in _________________________________________________predetermined
periods.
Cash inflows, cash outflows
5. Liquidity management methodology of evaluating whether a bank has sufficient
liquid funds based on the behaviour of cash flows under the different 'what if
scenarios is known as-----.
Alternative Scenarios
6. The capability of bank to withstand a net funding requirement in a bank specific
or general market liquidity crisis is denoted as----------------.
Contingency planning
*************************************************************************
UNIT 27
Check Your Progress
Fill in the blanks:
1. Changes in interest rates also affect the underlying value of the bank's assets,
liabilities
2. Rise in interest rates decreases, increases the market value of that asset or
liability.
3. The gap is the difference between the amount of assets and liabilities on which
the interest rates are reset during a given period.
4. Mismatch occurs when assets and liabilities fall due for repricing in different
periods.
5. The economic value of a bank can be viewed as the present value of the bank's
expected net cash flows
6. A negative, or liability-sensitive gap occurs when liabilities exceed assets
(including OBS positions) in a given time band.

7. Estimates derived from a standard duration generally focus on just one form of
interest rate risk exposure, i.e.repricing risk
8. Interest rate risk can be managed by matching repriceable assets with
repriceable liabilities.
9. Proliferation of NPA results in increasing maturity mismatch.
10.The adverse impact on NiI due to mismatches can be minimised by fixing
appropriate tolerance limits on interest rate senstitivity gaps.