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ALM and Banking Fundamentals
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ALM and Banking Fundamentals
ALM and Banking Fundamentals
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1
Question
What is Asset Liability Management (ALM)?
Page 1
Answer
A financial strategy used by banks to manage and balance assets and liabilities.
2
Question
What risks does ALM help manage?
Page 1
Answer
Mismatches in assets and liabilities, interest rate fluctuations, and liquidity constraints.
3
Question
True or False: ALM helps preserve public confidence in banks.
Page 1
Answer
True
4
Question
Enumerate the importance of ALM.
Page 1
Answer
1. Maintains equilibrium between assets and liabilities. 2. Protects capital and ensures institutional stability. 3. Supports long-term sustainability and profitability through risk-return management.
5
Question
What is Gap Analysis in ALM?
Page 1
Answer
Identifies mismatches between assets and liabilities in terms of maturities or interest rate sensitivity.
6
Question
Identify the purpose of Duration Analysis.
Page 1
Answer
Measures how sensitive a portfolio is to changes in interest rates.
7
Question
What does Monte Carlo Simulation do in ALM?
Page 1
Answer
Models different economic scenarios to evaluate potential risks and outcomes.
8
Question
True or False: Banks must maintain an updated inventory of all assets and liabilities.
Page 1
Answer
True
9
Question
Enumerate the risks banks manage through ALM.
Page 1
Answer
Interest rate risk, credit risk, and currency risks.
10
Question
What is essential for daily operations in ALM?
Page 1
Answer
Preserve adequate liquidity.
11
Question
Identify the role of forecasting in ALM.
Page 1
Answer
Perform forecasting and scenario planning for potential financial changes.
12
Question
True or False: Effective ALM synchronizes maturities and interest rates.
Page 1
Answer
True
13
Question
What does an ALM Analyst focus on?
Page 1
Answer
Data analysis and financial modeling.
14
Question
Enumerate careers in ALM.
Page 1
Answer
1. ALM Analyst. 2. ALM Manager. 3. ALM Trader. 4. Risk Manager.
15
Question
What causes liquidity challenges according to liquidity risk?
Page 1
Answer
Unpredictable deposits and withdrawals creating uncertainty in cash flow.
16
Question
True or False: Proper ALM prevents instability from deposit behavior.
Page 1
Answer
True
17
Question
What is an advantage of automatic payments?
Page 2
Answer
Provide convenience and ensure timely payments.
18
Question
Identify a disadvantage of automatic payments.
Page 2
Answer
May result in unexpected withdrawals, overdrafts, or additional fees.
19
Question
Enumerate best practices for automatic payments.
Page 2
Answer
1. Regularly review account statements. 2. Enable alerts and notifications. 3. Use a separate account. 4. Maintain communication with providers. 5. Understand rights regarding unauthorized transactions.
20
Question
What are bank reserves?
Page 2
Answer
Funds set aside to cover unexpected withdrawals or losses.
21
Question
True or False: Bank reserves support the stability of the payment system.
Page 2
Answer
True
22
Question
Enumerate the importance of bank reserves.
Page 2
Answer
1. Key tool for liquidity management. 2. Support stability of payment system. 3. Role in monetary policy. 4. Include required and excess reserves.
23
Question
What is the Loan-to-Deposit Ratio (LDR)?
Page 2
Answer
(Loans ÷ Deposits) × 100
24
Question
True or False: A high LDR indicates higher risk and lower liquidity.
Page 2
Answer
True
25
Question
Identify the ideal LDR interpretation.
Page 2
Answer
Maintains a balance between profitability and liquidity.
26
Question
Enumerate the steps in a bank levy process.
Page 2
Answer
1. Court order. 2. Levy notice. 3. Account freeze. 4. Withdrawal of funds. 5. Possible fees. 6. Certain exemptions.
27
Question
What is a key factor in bank failure?
Page 2
Answer
Illiquid assets versus withdrawable liabilities.
28
Question
True or False: Weak internal controls contribute to bank failure.
Page 2
Answer
True
29
Question
What is a bank run?
Page 3
Answer
Large number of depositors withdrawing funds simultaneously due to fear of insolvency.
30
Question
True or False: Trust and confidence are critical to prevent bank runs.
Page 3
Answer
True