- 20 Marks
BO – APRIL 2023 – L3 – Q1 – Functions of Asset-Liability Committee (ALCO)
Identify and explain five functions of the bank's Asset-Liability Committee (ALCO) for ensuring short-term and long-term viability.
Question
a) Your bank’s Asset Liability Committee (ALCO) is a very important committee that ensures the sustainability and viability of the bank both in the short-term and long term. Identify and explain five functions performed by this committee in your bank. [15 marks]
b) Gap analysis is used in Asset and Liability management to measure interest rate risk in a bank’s balance sheet. Explain the phrase ‘Positive Gap’. How is a positive gap affected by rising interest rates? [7.5 marks]
c) Interest rate swaps are often used to manage interest rate risk of an organization. Briefly explain interest rate swaps and the expectation of a buyer of this risk hedging instrument. [7.5 marks]
[Total: 30 marks]
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