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Essay / Research Paper Abstract
This 3 page paper critically evaluate the Asset Liability Management (ALM), Mark to Market, NPV and Duration model that are used by financial institutions for managing interest rate risk. The paper only looks at the use of the models and does not outline the operation of the models. The bibliography cites 4 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TErkassess.rtf
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Unformatted sample text from the term paper:
of strategies to minimise risk. These include Asset Liability Management (ALM), Mark to Market, NPV and Duration model. Asset Liability Model (ALM) is widely used and may be seen as
supported by the way in which IAS 39 creates an important link between ALM and the general ledger positions of banks. The model is widely used due to its
flexibility and also as it looks at both the interest rate risk and the liquidity risk so it is able to help a balance between the requirements and financial strategies
to be formulated (Howells and Bain. 1998). This tool is widely used in a strategy manner by banks on an ongoing basis, so has the confidences of the market.
Mark to Market, (MTM) is an interesting tool, the assets are value at their current market value rather than their book value. This gives an immediate impression of any shortfall
that may exist. In the short term this has value, but the market values for current assets may not be those that will be realised, especially with longer term assets
making a value appear falsely high or low (Howells and Bain. 1998). The value of this tool is often seen in areas such as futures valuing but where there
is a match between assets and liabilities there maybe better tools that can be used (Howells and Bain. 1998). Net present value is a tool that can be
used to assess different types of investments. By discounting them into todays terms this allows for compensation to be made and the real value or loss to be assessed. However
there are some difficulties when the projects or investments are of very differing term, as this does allow for direct comparison, but there is not the same transparency when looking
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