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FRM Part II · FRM Exam Part II · The Investment Function in Financial Services Management

A treasury team splits its investment portfolio into a liquidity tranche of Treasury bills and a return tranche of longer-term bonds, sizing the liquidity tranche from projected deposit outflows. Which strategy is this?

This is a segmented, combined approach that separates the portfolio into a liquidity component and an income component. The liquid Treasury bills are sized to meet projected deposit outflows, while the longer bonds earn return. It is not immunisation or a bullet strategy.

  1. AImmunisation of a single liability
  2. BBullet maturity strategy
  3. CPassive buy-and-hold with no liquidity consideration
  4. DSegmentation of the portfolio into liquidity and income components (a combined approach)Correct

Explanation

Dividing the portfolio into a liquid tranche sized for expected outflows and a higher-yielding tranche for income is a combined or segmented approach to balancing liquidity and return. It is not immunisation, which matches duration to a liability, nor a bullet concentrated at one maturity.

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