March 2002
Intermediate to advanced
176 pages
3h 48m
English
book
Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition
by Jean Dermine, Youssef F. Bissada
Content preview from Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition
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Cash flow gap for ‘normal time’
The bank calculates the amount of cash coming in and going out over a fairly short time interval (the coming days) (Table 16.1).
| interest income | |
| – | interest expense |
| –/+ | margin calls |
| – – | operating expenses tax |
| + | reimbursement of principal on loans or bonds |
| – – | estimated amount of lending reimbursement of deposits |
| + | estimated amount of new deposits |
| net cash flow |
If the cash flow is positive, there is no liquidity problem.
If the cash flow is negative, the bank will have to plan borrowing on the interbank market or proceed with the sale of bonds.
In order to avoid meeting a liquidity problem, the bank will put a cap on the amount of money it needs to borrow over a certain period. For instance, this ...
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