2. Banks manage their assets in a variety of ways. a. Explain the importance of

Question

2. Banks manage their assets in a variety of ways. a. Explain the importance of “liquidity management”? b. What is the concern of the bank in regard to the liquidity of its assets? c. What can banks do to management liquidity risk? 3. Bank Management is becoming increasingly complicated. a. What are the Four Major concerns of bank managers in ensuring the profitability of their operations? b. Explain three with examples. c. Which one do you believe is most important? Explain with examples. 4. The management of bank risk is a crucial function of management. a. What are the most important risk management principles that involve approving loans? b. Why do Adverse Selection and Moral Hazards make the underwriting process more complicated. c. Is the loan approval process different in Western/International banks in comparison to Islamic banks? Explain with examples.

Explanation / Answer

2.

a.

Liquidity management refers to a bank's abilities to fulfill its cash and collateral obligations without sustaining unacceptable losses.

The importance of “liquidity management” is given below-

· improved control of cash flows

· Reduced dependency on other credit facilities

· make better enterprise-wide liquidity risk management

· boost strategic financial flexibility

b.

Liquidity for a bank is the ability to meet its financial obligations. Generally a bank credit finances investments in comparatively illiquid assets, and generate its funds with mostly short term liabilities. .

It derives its funds from customer deposits, Its assets are loans to small firms and households, Excess funds are usually invested in assets that will provide it with liquidity.

c.

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