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Liquidity Risk Management in Financial Institutions

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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?

To ensure proper risk management (D) Signup and view all the answers

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

Have appropriate strategies, policies, and procedures in place (D) Signup and view all the answers

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

They should be clearly defined and consistent with the nature and complexity of activities. (B) Signup and view all the answers

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

Financial institution's funding and balance sheet management (B) Signup and view all the answers

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

By identifying, measuring, and monitoring interest rate risk effectively (B) Signup and view all the answers

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

Managing marketing campaigns (A) Signup and view all the answers

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

Interest rate risk (D) Signup and view all the answers