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CS Professional · Banking and Insurance - Laws and Practice · Risk Management in Banks and Basel Accords

Meera, a risk officer at Sagar Bank, prepares a structural liquidity statement that places the bank's cash flows into time buckets according to their residual maturity to identify mismatches. Which tool is she using?

She is using gap analysis through a structural liquidity statement. Cash inflows and outflows are placed in time buckets by residual maturity and compared to reveal mismatches. Value at Risk and duration analysis measure market value or interest rate sensitivity rather than maturity-wise liquidity gaps.

  1. AGap analysis through a statement of structural liquidityCorrect
  2. BValue at Risk model
  3. CDuration of equity analysis for interest rate risk
  4. DCredit rating migration matrix

Explanation

Banks measure liquidity by placing inflows and outflows in maturity buckets and comparing them to find gaps; this is the structural liquidity statement under gap analysis. Value at Risk estimates potential market loss and duration analysis addresses interest rate sensitivity, so neither describes bucketing of cash flows.

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