The rationales behind liquidity management are as below:
1. Ensuring enough liquidity to guarantee the orderly funding of members
needs;
2. Providing a prudent cushion for unforeseen liquidity needs;
3. Investing liquid funds in a manner which emphasizes the need for security
and liquidity.
1. Liability management focuses on Economic Value.
2. Liabilities and their associated assets are mutually dependent.
3. The level of risk associated with a given financial objective can be reduced
4. Greater rewards are generally expected from portfolios with higher levels of risk.
5. Expected risk/reward trade-off tends to worsen as more constraints are
imposed
6. Asset and liability cash flows cannot be projected with certainty.
7. The overall risk of a portfolio may be reduced through hedging.