Alm Nd Finance

7/28/2019 Alm Nd Finance

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EXECUTIVE SUMMARY

Asset liability management (ALM) is an overall risk management technique

forpension funds. ALM requires the board to formulate guidelines for its strategy on

contribution and indexing levels, and its attitude to risk. ALM is based on stochastic

simulation and is used as a basis for decisions on the distribution of future

contributions, funding, and indexing levels. Practicing ALM requires an assets and

liabilities committee (ALCO). An ALCO consists of seniorpension

fund management, with the chief risk officer as chairman. The committee converts the

guidelines into formal proposals on the investment strategy and the contributions and

indexing policies.

ALM does not predict the future, but it gives insight into the possible risks a pension

fund is exposed to and how to handle them.

An ALM model should be as parsimonious and uncomplicated as possible. The

purpose of such models is to act as a tool to help management understand what

is really going on, and how to reach responsible and internally consistent

decisions
http://www.qfinance.com/dictionary/liability-managementhttp://www.qfinance.com/dictionary/risk-managementhttp://www.qfinance.com/dictionary/pension-fundhttp://www.qfinance.com/dictionary/pension-fundhttp://www.qfinance.com/dictionary/pension-fundhttp://www.qfinance.com/dictionary/pension-fundhttp://www.qfinance.com/dictionary/pension-fundhttp://www.qfinance.com/dictionary/pension-fundhttp://www.qfinance.com/dictionary/pension-fundhttp://www.qfinance.com/dictionary/pension-fundhttp://www.qfinance.com/dictionary/pension-fundhttp://www.qfinance.com/dictionary/pension-fundhttp://www.qfinance.com/dictionary/risk-managementhttp://www.qfinance.com/dictionary/liability-management


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INTRODUCTION TO FINANCIAL INSTRUMENTS

A financial instrument is a trad-able asset of any kind, either cash; evidence of an

ownership interest in an entity; or a contractual right to receive, or deliver, cash or

another financial instrument.

According toIAS32 and39, it is defined as 'any contract that gives rise to a

financial asset of one entity and a financial liability or equity instrument of another

entity'.

Financial instruments can be categorized by form depending on whether they

are cash instruments or derivative instruments:

Cash instruments are financial instruments whose value is determined directlyby markets. They can be divided intosecurities, which are readily transferable,

and other cash instruments such asloansanddeposits, where both borrower and

lender have to agree on a transfer.

Derivative instrumentsare financial instruments which derive their value fromthe value and characteristics of one or more underlying entities such as an asset,

index, or interest rate. They can be divided intoexchange-traded

derivativesandover-the-counter (OTC) derivatives.

Alternatively, financial instruments can be categorized by "asset class" depending

on whether they are equity based (reflectingownershipof the issuing entity)

or debt based (reflecting a loan the investor has made to the issuing entity). If it is

debt, it can be further categorized into short term (less than one year) or long term.

Foreign Exchange instrumentsand transactions are neither debt nor equity based

and belong in their own category.
http://en.wikipedia.org/wiki/International_Accounting_Standardshttp://en.wikipedia.org/wiki/International_Accounting_Standardshttp://en.wikipedia.org/wiki/International_Accounting_Standardshttp://en.wikipedia.org/wiki/IAS_39http://en.wikipedia.org/wiki/IAS_39http://en.wikipedia.org/wiki/IAS_39http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Depositshttp://en.wikipedia.org/wiki/Depositshttp://en.wikipedia.org/wiki/Depositshttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-tradedhttp://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-tradedhttp://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-tradedhttp://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-tradedhttp://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-tradedhttp://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-tradedhttp://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-tradedhttp://en.wikipedia.org/wiki/Ownershiphttp://en.wikipedia.org/wiki/Ownershiphttp://en.wikipedia.org/wiki/Ownershiphttp://en.wikipedia.org/w/index.php?title=Foreign_Exchange_instruments&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Foreign_Exchange_instruments&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Foreign_Exchange_instruments&action=edit&redlink=1http://en.wikipedia.org/wiki/Ownershiphttp://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-tradedhttp://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-tradedhttp://en.wikipedia.org/wiki/Derivative_(finance)#OTC_and_exchange-tradedhttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Depositshttp://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/IAS_39http://en.wikipedia.org/wiki/International_Accounting_Standards


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INTRODUCTION TO FINANCIAL SERVICES

The financial services sector in India has witnessed a fundamental transformation

since the country was liberalized. India, in the last few years, has emerged as theone of the most rapidly growing economies across the globe. The financial services

market is growing rapidly, and there is significant potential for further growth.

The financial services sector includes broking firms, investment services, national

banks, private banks, mutual funds, car and home loans, and equity market

Financial Services in India - Key Drivers

Indias high savings rate offers significant opportunity to put resources into the

financial markets. The country has a favourable demographic profile with a large

segment of the population under 30 years. The Census 2011 shows that 56.9 per

cent of Indias total population comes in the age group 15 -59 years. The country

will witness a sharp decline in the dependency ratio over the next thirty years

which will be a great dividend. As the dividend begins to pay off, with the workingage-group population rising disproportionately over the next two decades, the

savings rate is likely to rise further, according to Mr Pranab Mukherjee, Union

Finance Minister

A large, untapped domestic market, with a huge growth potential Presence of financial and capital market mechanisms A large and continuously growing intellectual capital Healthy rate of economic growth

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Alm Nd Finance