Liquidity management Details

Lesson 7 elaborates on the action variables of liquidity management on both the asset and the liability side. On the liability side, it includes a detailed examination of "strategic" funding sources, which are generally outside of the control of the liquidity manager. Nevertheless, a good basic understanding of these options is essential for the derivation of the liquidity requirements generated by the primary MFI functions. When you have studied this lesson you should be able to:

• distinguish active liquidity management from passive liquidity measurement,
• decide which types of liquid assets might be suitable instruments for holding your institution's liquidity stock,
• develop a strategy for reducing the opportunity cost of stored liquidity,
• name the properties of securities that characterize suitable liquid assets,
• develop strategies for raising cash from non-liquid assets,
• explain the liquidity consequences of strategic funding decisions concerning equity, bonds, long-term loans and deposits,
• describe how savings product design, bank reputation and convenience influence the development of the deposit base,
• distinguish purchased funds from retail deposits,
• develop a short-term borrowing strategy for your institution,
• discuss advantages and problems of inter-MFI liquidity pools and so-called apex institutions,
• assess different funding options in the four dimensions of direct and indirect financial costs, administrative costs and liquidity risk.

• lesson 7: active liquidity management (EN)