Answer-first summary for fast verification
Answer: Implementing asset-liability management
C is correct. Asset/liability management is a process used in managing banks' funding liquidity risk, with techniques including gap and duration analysis. This is important because maturity mismatches on banks' balance sheets (for example, if a bank funds longer-term loans using short-term deposits) can create risk for a bank if short-term interest rates rise faster than longer term rates. A is incorrect. VaR models are used to manage market risk. B is incorrect. Credit default swaps are used to hedge against counterparty risk, which is a form of credit risk. D is incorrect. Calculating loss given default is used to quantify credit risk.
Author: LeetQuiz Editorial Team
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A treasury risk manager working for a large bank is responsible for liquidity risk management. The manager is particularly interested in processes for funding liquidity risk management. Which of the following is the most appropriate process used for funding liquidity risk management?
A
Building VaR models
B
Purchasing credit default swaps
C
Implementing asset-liability management
D
Calculating loss given default
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