MANAGING LIQUIDITY RISK

Question 1

Four key methods to manage liquidity risk

Answer 1

(1) Liquidity profiling & time to cash table
(2) Rebalancing & commitment
(3) Stress testing
(4) Derivatives

Question 2

the components of a timeline that involves constructing a liquidity
classification of schedules

Answer 2

(1) amount of time needed to convert assets to cash
(2) Liquidity classification level
(3) Liquidity budget

Question 3

Rebalancing and Commitments contents

Answer 3

A. Rebalancing:
1. Systematic rebalancing policies
\+ Definition: design to maintain SAA
\+ Include:
   * Calendar
   * Percentage range rebalancing for various asset
2. Automatic adjustment mechanisms
\+ definition: assist in keeping the portfolio risk profile relative constant if there is a change from the target.
B. Commitment:

Question 4

Stress Testing

Answer 4

Stress testing explicitly considers how the liquidity needs of a portfolio will change during a period of market stress

Question 5

function to calculate illiquidity premium

Answer 5

= return of illiquidity assets - return of liquiidty market

Question 6

2 type of earning risk

Answer 6

(1) Unemployment

(2) Disability

Question 7

headline risk.

Answer 7

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