Asset-liability management

Question 1

Principle of investment

Answer 1

1. A provider of financial benefits should select investments that are appropriate to the
   - Nature
   - Term
   - Currency
   - Uncertainty of the liabilities
   - The provider’s risk appetite
2. Also select investments that maximize the overall return on the assets including capital gain and income subject to 1

Question 2

Two key influences on a provider’s decision on the appropriate balance between risk and return

Answer 2

The level of free assets and any regulatory constraints

Question 3

Optimal matched position

Answer 3

The matched position that satisfies the investor’s required degree of certainty in meeting the liabilities for the least costs, taking into account regulatory requirements and other investment objectives.

Question 4

Pure matching

Answer 4

-Structuring the flow of income and maturity proceeds from the assets so that they coincide precisely with the net outgo from the liabilities under all circumstances

Question 5

Liability hedging

Answer 5

-Assets are chosen in such a way as to perform in a similar way to the liabilities
-Hedge against all unpredictable Changes in liabilities arising from the unpredictable changes in the factors affecting the liability value