Solution for Bank Management and Financial Services 9th Edition Chapter 7, Problem 1

by Peter S. Rose, Sylvia C. Hudgins
605 Solutions 20 Chapters 112446 Studied ISBN: 9780078034671 Finance 5 (1)

Chapter 7, Problem Concept_Checks 1 : Concept Checks 7-1. What do the...

Concept Checks

7-1. What do the following terms mean: Asset management? Liability management? Funds management?


Step-By-Step Solution

7-1. Asset management refers to a banking strategy where management has control over the allocation of bank assets but believes the bank's sources of funds (principally deposits) are outside its control. The key decision area for management is not deposits and other borrowings but assets. The financial manager exercises control over the allocation of incoming funds by deciding who is granted loans and what the terms on those loans will be.

Liability management is a strategy wherein greater control towards bank liabilities is exercised. This is done mainly by opening up new sources of funding and monitoring the volume, mix and cost of their deposits and non-deposit items.

Funds management combines both asset and liability management approaches into a balanced liquidity management strategy. Effective coordination in managing assets and liabilities will help to maximize the spread between revenues and costs and control risk exposure.


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