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Question:
You have just been appointed the secretary of the ALM Committee (ALCO) of ABN Bank. The ALCO members have some queries relating to the liquidity risk faced by the bank and you are asked to draft a response to each of them. The queries are as follows:
(a) Briefly define liquidity risk faced by a bank.
(b) Outline for methods that ABN Bank can use to measure liquidity risk.
(c) Propose typical internal liquidity guidelines that the ALCO can implement for ABN Bank.
(d) How ABN Bank can meet its liquidity calls?
(e) Briefly explain the ALCO members how liquidity mismatch between assets and liabilities can affect the Net Interest Income Margin for a Bank.
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