Asset liabilities management (ALM) helps banks track the difference between the interest paid on deposits and then interest earned on loans which is known as base lending rate.

• True

• False

Bank Z charges 8 percent interest on a loan and pays a 6 percent rate of interest on deposit, the interest rate margin is

• 14%

• 2%

ALM is designed to address the risk faced by banks due to a mismatch between assets and liabilities,

• True

• False

Bank can with 100 percent certainty predict interest rate fluctuations

• True

• False

Financial derivatives instruments in banks must only be used for speculative or investment purposes.

• True

• False

Sources of funds for a banks can be summarized into three types: capital, deposits and assets.

• True

• False

The assets of a banks can be classified into two broad categories: earning assets and high earning assets.

• True

• False

Cash on premises is an example of earning assets

• True

• False

Since external borrowings may be a more expensive source of funding, policy should require limited reliance on these borrowings.

• True

• False

Concentrated funding sources expose the banks to potential liquidity problems because of the likelihood of unexpected deposit withdrawals

• True

• False