Liquidity Risk Management in Financial Institutions
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Questions and Answers

What is the purpose of establishing an Asset Liability Committee (ALCO) in financial institutions?

  • To manage marketing campaigns
  • To increase profitability
  • To oversee the management of interest rate risks (correct)
  • To handle customer complaints
  • Why should financial institutions implement a Management Information System (MIS)?

  • To increase customer satisfaction
  • To identify and manage interest rate risk (correct)
  • To reduce employee turnover
  • To expand the branch network
  • How does the interest rate risk strategy impact financial institutions?

  • Significantly on profitability and capital (correct)
  • Mainly on customer service quality
  • Chiefly on advertising effectiveness
  • Primarily on employee satisfaction
  • Why is it essential for financial institutions to align their interest rate risk profile with business plans?

    <p>To ensure proper risk management</p> Signup and view all the answers

    What should financial institutions do to maintain interest rate risk within prudent levels?

    <p>Have appropriate strategies, policies, and procedures in place</p> Signup and view all the answers

    Which of the following statements is true about interest rate risk policies and procedures for financial institutions?

    <p>They should be clearly defined and consistent with the nature and complexity of activities.</p> Signup and view all the answers

    In addition to interest rate risks, what else should an Asset Liability Committee (ALCO) oversee?

    <p>Financial institution's funding and balance sheet management</p> Signup and view all the answers

    How can an appropriate Management Information System (MIS) benefit financial institutions?

    <p>By identifying, measuring, and monitoring interest rate risk effectively</p> Signup and view all the answers

    Which of the following is not a function of an Asset Liability Committee (ALCO)?

    <p>Managing marketing campaigns</p> Signup and view all the answers

    What type of risk should financial institutions aim to keep within prudent levels?

    <p>Interest rate risk</p> Signup and view all the answers

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