DBFI401 ALM AND TREASURY MANAGEMENT

Description

SESSION	Jan-Feb 2026
PROGRAM	MASTER OF BUSINESS ADMINISTRATION (MBA)
SEMESTER	IV
course CODE & NAME	DBFI401 ALM & TREASURY MANAGEMENT

 

 

Assignment Set – 1

 

Q.1. Explain the concept and functions of Asset Liability Management (ALM) and analyze how treasury management supports effective ALM in banks.

Concept of Asset Liability Management (ALM)

Asset Liability Management refers to the way in which banks and financial institutions manage their debts and assets with a coordinated approach to limit financial risk. The primary goal of ALM is to earn satisfactory returns while maintaining necessary levels of liquidity, and reducing the risks that come from the mismatch between both liabilities and assets. For Indian banking institutions, ALM is now mandatory, after it was announced that the Reserve Bank of India issued specific guidelines in 1999, based on the Basel framework. The guidelines recognize that risks do not exist by themselves and that the balance sheet must

 

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Q.2. Explain the financial statements of banking companies and the key financial ratios used for analysis.

Ans 2.

Financial Statements of Banking Companies

Financial statements for banking companies differ significantly from those of companies that are not banks due to the distinctive characteristics of bank operations. In India, the format is controlled by the Banking Regulation Act, 1949 as well as the rules that are issued by the Reserve Bank of India. The three most significant financial statements include that of the Balance Sheet the Profit and loss account and the Schedules that form part of these statements.

The statement of the balance sheet for a bank includes liabilities and capital on the one hand while assets are on the other. These include liabilities for capital, reserves and surplus, deposits,

 

 

Q.3. Explain the role of debt management, equity management, and investment management in bank financing. How does Strategic Treasury Management integrate these activities to enhance profitability and financial efficiency?

Ans 3.

Debt Management in Banks

Debt management in a banking sense refers to the method by which a bank manages its borrowed funds to minimize cost and meet the requirements for liquidity. Banks take loans from different sources such as deposits, interbank borrowings, bonds, as well as refinance and loan facilities offered by the RBI. The goal is to build an insurance mix which is efficient, well-diversified, and stable when it comes to the maturity. Banks that have a significant dependance on interbank loans for short periods is at risk of significant rollover risks. An effective debt management system ensures that liabilities are structured to be in line with the length of assets as close as can be. The cost of funds is an important metric, and treasury teams actively work to reduce it by tapping low-cost sources like

 

 

Assignment Set – 2

 

Q.4. Discuss the various types of financial risks faced by banks, focusing on foreign exchange risk, interest rate risk, and liquidity risk. Explain the methods used by banks to manage these risks effectively.

Ans 4.

Financial Risks in Banking

Banks work in a complicated market and are subject to various types of risk. The three major risks that are associated with markets include currency risk, interest rate risk, and risk of liquidity. Each risk can independently threaten the profitability of a bank and its solvency in a variety of ways, and often interfer in tandem, increasing the overall impact.

Foreign Exchange Risk

The risk of currency exchange comes from banks’ exposure to fluctuations in exchange rates. Banks that

 

 

Q.5. Explain the management of treasury functions in banks, including decentralization, performance management, and internal control.

Ans 5.

Treasury Functions in Banks

The department that manages treasury for a bank is responsible for managing the bank’s financial resources efficiently in money markets such as bond markets, foreign exchange, and derivative instruments. The treasury function has expanded significantly in recent decades from a back-office liquidity management unit to a sophisticated front-line profit center. A proper management of the treasury function requires coordinating the process effectively, monitoring performance precisely

 

 

Q.6. Discuss the advanced ALM tools and risk management techniques used in banking.

Ans 6.

Advanced ALM Tools in Banking

Traditional gap analysis and duration analysis offer a simple understanding of interest rate as well as liquidity risk. However, as banking has become more complex banking, banks and regulators have adopted advanced quantitative instruments that offer deeper insight and more accurate risk measurements.

Value at Risk (VaR)

Value at Risk (VAR) is a statistic that