Question

Explain the following bank management activities: liquidity management, asset management, liquidity management, capital adequacy management, credit risk management, interest-rate risk management.

Answer 1

Liquidity management refers to the ability of a bank to meet its financial obligations as they come due. It can come from direct cash holdings in currency or on account at the Federal Reserve or other central bank. More frequently, it comes from acquiring securities that can be sold quickly with minimal loss. This basically states highly creditworthy securities, comprising of government bills, which have short term maturities.

If their maturity is short enough the bank may simply wait for them to return the principle at maturity. For short term, very safe securities favor to trade in liquid markets, stating that large volumes can be sold without moving prices too much and with low transaction costs.

Asset Management is a team within a financial firm that is dedicated to managing the assets (cash, investments etc.) of clients. The asset management firm has dedicated portfolio managers as well as access to internal, detailed equity research reports which should give it an edge over investors controlling their own money

it invests its clients’ funds in equities, derivatives, commodities, securities, currencies, etc., to grow these investments. It chooses investment vehicles based on clients’ requirements and attitude to risk