ALM Project

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    Financial management is the life blood of the every business organization. The

    subject of financial management is of immense interest to both academicians and practicing

    managers. Financial management is that managerial activity which is concerned with the

    planning and controlling and of the firms financial resources.

    The modern thinking in financial management accords a far greater. Importance to

    management in decision-making and formulation of policy financial management occupies

    key position in top management and plays a dynamic role in solving complex management

    problems. They are now responsible for shaping the fortunes of the enterprise and are

    involved in allocation of capital.


    Financial management is the operations activity of a business that is responsible for

    obtaining and effectively utilizing the funds necessary for efficient operations


    Financial management is the activity concerned with the planning, raising, controlling and

    administrating the funds used in the business.

    Guthman and Dougall.

    Financial management is that managerial activity which is concerned with the planning and

    controlling of the firms financial resources.


    Financial management is concerned with the efficient use of an important economic

    resource namely capital funds.

    Ezra Soloma


    The objectives of financial management are considered usually at two levels, at

    micro-level and at macro-level. At micro-level, the chief objectives of financial management

    are to make an intensive and economical use of capital resources.

    The objectives of financial management at macro-level are considered at firm level.

    Since business firms are profit seeking organizations, their objectives are commonly


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    1) Maximization of profits.2) Maximization of returns.3) Maximization of owners wealth.


    The duty of the managers is to achieve the highest possible flow of the returns that

    will belong to the owners after all other delegations have been met.

    Maximization of returns:

    Returns are mainly based on the profits earned by the concern, if the organization

    earns sufficient profit, it will be able to satisfy the owner as well as its employment in the

    minimum possible extent.

    Wealth maximization:

    The proper goal of financial management is wealth maximization of equity

    shareholders as it is expressly concerned with the relationship or profitability and the volume

    of capital being used in the enterprise.


    The approach to the scope and the functions of financial management is divided for

    the purpose of expositions into two broad categories.

    A) Traditional Approach:

    Traditional approach to the finance function relates to the initial stages of its evolution

    during 1920s and 1930s when term corporate finance was used to describe in the academic

    world today as the financial management.

    The approach was focused on procurement of long-term funds. In that issue allocation

    of funds which is so important today is completely ignored. The utilization of funds was

    considered beyond the pure view of finance function.

    B) Modern Approach

    The Modern approach views finance function in broader sense. It includes both rising

    of funds as well as this effective utilization under the preview of finance. The cost of raising

    funds and the returns from their use should be compared. The utilization of funds requires

    decision making.

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    Finance functions covers financial planning rising of funds, allocation of funds,

    financial control etc. Modern approach is an analytical way of dealing with financial

    problems of firms.

    In that approach considers there are three basic management decisions i.e., investment

    decisions, financing & dividend decisions with in the scope of finance functions.


    Financial management, in the modern sense of the term, can be broken down into

    three major decisions as functions of finance. They are:-

    1) The investment decision.2) The financing decision.3) The dividend policy decision.4) The liquidity decision.

    Investment decision:

    It is broadly concerned with the investment of assets. The main idea is maximization

    of owners wealth. Decision is taken to maximize the benefits of equity shareholders.

    Financial decision:

    The major second decision of the firm is the financing decision. The use of debt

    affects the return and rise of shareholders. It may increase the return of the equity funds.

    Dividend decision:

    The finance manager must decide whether the firm should distribute all profits or

    certain term or distribute a portion and retain the balance.

    Liquidity Decision:

    Along with terms of funds current assets should also be managed efficiently for

    safeguarding the firm against the dangerous of ill liquidity and insolvency. An investment in

    current assets affects the firm profitability, liquidity and risk.

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    An Overview of Financial Management

    Finance Functions

    It may be difficult to separate the finance functions from production, marketing and

    other functions, Yet the functions themselves can readily identified. The functions of raiding

    funds, investing them in assets to shareholders are respectively known as financing, investing

    and dividend decisions. While performing these functions a firm attempts to balance cash

    inflows and outflows. This is called liquidity decision.

    The five basic corporate finance functions are described as those functions related to

    Raising capital to support company operations and investments (financing functions). Selecting those projects based on risk and expected return that are the best use of a

    companys resources (capital budgeting functions).

    Management of company cash flow and balancing the ratio of debt and equityfinancing to maximize company value (financial management function);


    Maximization of share value

    Financial Decision









    Return RiskTrade-Off

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    Developing a company governance structure to encourage ethical behavior andactions that serve the best interests of its stockholders (corporate governance


    Management of risk exposure to maintain optimum risk-return trade-off thatmaximizes shareholder value (risk management function).


    Assets and liabilities management

    Assets and liability management (ALM) is aimed at systematically getting the right

    match of assets and liabilities, to make sure those commitments to policyholders can be metall times. It is the process of planning, organizing, and controlling asset and liability volumes,

    maturities, rates, and yields in order to minimize interest rate risk and maintain an acceptable

    profitability level. Simply stated, ALM is another form of planning. It allows managers to be

    proactive and anticipate change, rather than reactive to unanticipated change.

    Company liquidity is directly affected by ALM decisions. Managers must always

    analyze the impact that any ALM decision will have on the liquidity position of the

    institution. Liquidity is affected by ALM in several conditions any changes in the maturity

    structure of the assets and liabilities can change the cash requirements and flows. Savings or

    credit promotions to better serve clients or change the ALM mix could have a detrimental

    effect on liquidity, if not monitored closely. Changes in interest rates could impact liquidity.

    If savings rates are lowered, clients might withdraw their funds a cause a liquidity shortfall.

    Higher interest rates on loans could make it difficult for some clients to meet interest

    payments, causing a liquidity shortage.

    Assets and liabilities:


    It is the process of planning, organizing, and controlling asset and liability volumes,

    maturities, rates, and yields in order to minimize interest rate risk and maintain an acceptable

    profitability level.

    Asset Liability Management(ALM) is a strategic approach of managing the balance

    sheet dynamics in such a way that the net earnings are maximized.

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    This approach is concerned with management of net interest margin to ensure that its

    level and riskiness are compatible with the risk return objectives.

    If one has to define Asset and Liability management without going into detail about

    its need and utility, it can be defined as simply management of moneywhich carries value

    and can change its shape very quickly and has an ability to come back to its original shape

    with or without an additional growth. The art of proper management of healthy money is


    The Liberalization measures initiated in the country resulted in revolutionary changes

    in the sector. There was a shift in the policy approach from the traditionally administered

    market regime to a free market driven regime. This has put pressure on the earning capacity

    of co-operative, which forced them to foray into new operational areas thereby exposing

    themselves to new risks. As major part of funds at the disposal from outside sources, the

    management are concerned about RISK arising out of shrinkage in the value of asset, and

    managing such risks became critically important to them. Although co-operatives are able to

    mobilize deposits, major portions of it are high cost fixed deposits. Maturities of these fixed

    deposits were not properly matched with the maturities of assets created out of them. The tool

    called ASSET AND LIABILITY MANAGEMENTprovides a better solution for this.

    ASSET LIABILITY MANAGEMENT (ALM) is a portfolio management of assets

    and liability of an organization. This is a method of matching various assets with liabilities on

    the basis of expected rates of return and expected maturity pattern

    In the context ofALM is defined as a process of adjusting s liability to meet loan

    demands, liquidity needs and safety requirements.This will result in optimum value of the

    same time reducing the risks faced by them and managing the different types of risks by

    keeping it within acceptable levels.

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    Purpose and objectives of assets and liabilities:

    An effective Asset Liability Management Technique aims to manage the volume,

    mix, maturity, rate sensitivity, quality and liquidity of assets and liabilities as a whole so as to

    attain a predetermined acceptable risk/reward ration.

    It is aimed to stabilize short-term profits, long-term earnings and long-term substance

    of the bank. The parameters for stabilizing ALM system are:

    1. Net Interest Income (NII)

    2. Net Interest Margin (NIM)

    3. Economic Equity Ratio

    Components of liabilities:

    1. Capital:

    Capital represents owners contribution/stake in the bank.

    It serves as a cushion for depositors and creditors.

    It is considered to be a long term sources for the bank.

    2. Reserves & Surplus:

    Statutory Reserves

    Capital Reserves

    Investment Fluctuation Reserve

    Revenue and Other Reserves

    Balance in Profit and Loss Account

    3. Deposits:

    This is the main source of banks funds. The deposits are classified as deposits payable on

    demand and time. They are reflected in balance sheet as under:

    Demand Deposits

    Savings Bank Deposits

    Term Deposits

    4. Borrowings:

    (Borrowings include Refinance / Borrowings from RBI, Inter-bank & other institutions)

    Borrowings in India

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    Other Institutions & Agencies

    Borrowings outside India

    5. Other Liabilities & Provisions:

    It is grouped as under:

    Bills Payable

    Inter Office Adjustments (Net)

    Interest Accrued

    Unsecured Redeemable Bonds

    -II Capital)

    Others(including provisions)

    Components of assets:

    1. Cash & Bank Balances with RBI:

    (Including foreign currency notes)

    e Bank of India

    In Current Accounts

    In other accounts

    2. Balances with banks and money at call and short notice:

    Balances with Banks

    With Banks

    With Other Institutions

    In Current Accounts

    In Other Deposit Accounts

    Money at Call & Short Notice

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    3. Investments:

    A major asset item in the banks balance sheet. Reflected under 6 buckets as under:

    I. Investments in India in:

    Government Securities

    Other approved Securities


    Debentures and Bonds

    Subsidiaries and Sponsored Institutions

    Others (UTI Shares, Commercial Papers, COD & Mutual Fund Units etc.)

    Investments outside India in: and/or Associates abroad

    4. Advances:

    The most important assets for a bank.

    A. Bills Purchased and Discounted

    Cash Credits, Overdrafts & Loans repayable on demand

    Term Loans

    B. Particulars of Advances:

    Secured by tangible asset (including advances against Book Debts)

    Covered by Bank/ Government Guarantees and Unsecured

    5. Fixed Assets:


    Other Fixed Assets (Including furniture and fixtures)

    6. Other Assets:

    Interest accrued

    Tax paid in advance/tax deducted at source(Net of Provisions)

    Stationery and Stamps

    Non-banking assets acquired in satisfaction of claims

    Deferred Tax Asset (Net)


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    The study is based on company analysis. The study is based on five consecutive years from 2008-12.

    The trend is in assets and liabilities analysis. The study is only for 45days period of time. The study is related with various aspects of working current assets, current liabilities. The information collected from primary data and secondary data.

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    1. To know about the possible sources of risk in retunes with the funding and lendingactivities of FORTUNE INFRA DEVELOPERS.

    2. To study and analyze the strength of existing risk management tools and improves itfurther.

    3. To understand the important Course of business and to the best possible ways tominimize risks.



    6. To study about concrete steps to increase net profit in future FORTUNE INFRADEVELOPERS PVT LTD

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    The study is conducted with the availability of FORTUNE INFRA PVT Ltdexpansion data & annual reports.

    The limited period of the study may not by detail full-fledged in all aspects. Since this is a case study, all the limitations applicable to a case study apply to this

    study also.

    The analysis is based on working capitals which were subject to several limitations.Therefore any analyses based on such statements also suffer from similar limitations.

    The external factors on that effect the financial performance of the company have notbeen given much importance.

    These decisions are cannot be taken as ultimate tools for the estimation of companywhether good or bad.

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    An effective Asset Liability Management Technique aims to manage the volume,

    mix, maturity, rate sensitivity, quality and liquidity of assets and liabilities as a whole so as toattain a predetermined acceptable risk/reward ration.

    It helps provide and inside into the various aspects of assets and liabilities managemento It acts as a future guide.o It helps to know the credit worthiness of firm.

    Studies of these types are also useful to competitors to more necessary steps to improveassets and to reduce liabilities

    Studies of these types of make necessary steps to improve assets to the organization.

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    For the preparation of a project the collection of data is very essential. There are

    two broad methods, from which date is to be collected. They are primary data and secondarydata.

    Primary data:o This is collected through discussions and by interviewing the personnel

    concerned within the Company.

    Secondary Data:o This information is collected mainly from published information Viz., annual

    reports, journals, books, magazines, internet available on the subject.

    Data collected from documents, records and files of the company. Data gathered from the annual reports of the company. Data collected from company website.

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    Real Estate Industry Background

    Real estate tends to be a particularly cyclical industry, going up and down based on

    trends in the economy at large such as the fluctuation in interest rates. The story of real estate

    often mirrors the general story of the American economy. Real estate soared in the post-World War II 1950s, sank in the 1970s, rose again in the early 1980s until the depression at

    the end of that decade, and was prosperous again at the end of the 1990s. Because of low

    interest rates in the mid-2000s, residential real estate was booming even when the economy

    was slow until the mortgage crisis hit and the bubble collapsed. After that point it sank and as

    of 2011 has yet to truly recover. Brokerage firms have taken on property management

    divisions in order to diversify their revenue streams and combat poor economic climates.

    The real estate industry consists of three primary fields: brokerages, leasing, and

    management. Brokers bring together buyers and sellers of property, assist in the price

    negotiations and arrange the steps between a buyer first taking interest in a property and

    closing, including appraisals and inspections. Generally, the seller pays a commission,

    dependent on the sale price (usually 5 or 6 percent), and this is split between a broker

    working for the buyer and the broker working for the seller. Real estate brokers must be

    licensed in the state in which they work. Leasing brings together property owners with

    tenants, sometimes owning that property themselves, or subleasing property they have leased

    from someone else. Management companies are responsible for making sure their buildings

    are filled with tenants, deciding what to charge these tenants, making sure the buildings run

    properly, paying utilities, hiring staff and other maintenance for owners who do not want to

    manage buildings themselves. Since most property expenses are fixed, maintaining low

    vacancy rates is critical to management companies. In particular, property management has

    been a fast growing field and should continue in its expansion, as commercial and residential

    properties that were overbuilt during the real estate boom will continue to need management

    until they are sold.

    The old adage, Location, location, location, is clich but true location is centrally

    important to determining the marketplace and the value for real estate. Factors controlling the

    quality of a location include public transportation access, the quality of the roads and schools,

    income levels and stability and success of the local economy. Some popular real estate

    franchises are the Century 21 Real Estate franchise and the Coldwell Banker Real Estate

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    Current State of the Real Estate Industry in 2012

    In 2010, there were 517,800 brokers working in the United States, 59 percent of who

    were self-employed. The industry is divided into residential and commercial real estate

    services, although some brokerages and management companies engage in both. The

    residential real estate industry is quite fragmented. The fifty largest companies make up less

    than thirty percent of the industrys total revenue. Of the three primary areas, brokerage

    services compose 45 percent of the industrys total revenue, leasing residential units makes

    up 35 percent and property management makes up fifteen percent.

    Since the collapse of the housing bubble, residential real estate revenue is still in the

    pits and unemployment has remained high. Some predict that when jobs come back en masse,

    residential real estate success will follow. The commercial industry is highly fragmented aswell. The fifty largest companies make up one third of total revenue. The commercial

    segment of the industry has fared slightly better than the residential segment since the

    recession. While it has not yet reaching the peaks of 2006 before the fall, analysts predict that

    the market bottomed out in 2010 and expect it to rebound somewhat in 2011.

    Real Estate Industry Future

    Potential obstacles for the industry include factors beyond the control of the business

    owner, such as downturns in the local or national economy, as well as changing

    neighborhood demographics where agencies are located. Also out of the owners control is

    the building of properties, and what properties in the area are available. For management

    companies, indoor air quality liability has become a serious legal issue in recent years.

    Removal of mold growth in particular has been increasingly necessary for property owners

    and managers.

    The use of technology will continue to transform the field in the years ahead, enabling

    home buyers to research both properties and the areas in which they are located, including

    looking at pictures and finding out about the neighborhoods schools, crime rates and other

    statistics. Marketing over the internet with pictures of properties and virtual tours will be

    important for brokers. More than ninety percent of people use the internet before purchasing

    real estate. United States population growth will also be an important driving factor in the

    growth of the industry at large. The workforce is expected to to grow fourteen percent

    between 2008 and 2018. The internet arguably may eliminate the need for brokers altogether

    in the future. Banks also represent a potential competitor.

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    Recently they have been freed by rule changes to enter the commercial real estate

    field in a limited way, and it is possible to see future rule changes allowing them to enter the

    residential field. The biggest growth areas are expected to be in the southern half ot the

    country, particularly in the southwest. A recent survey revealed the hottest buyers market to

    be Albuquerque, New Mexico.

    Even in spite of the poor economic conditions and the state of the industry, analysts

    are confident in the future growth in the industry. Brokers commissions are expected to grow

    at a compounded rate of fourteen percent annually from 2010 to 2015. The output of United

    States real estate businesses is expected to grow at an annually compounded rate of six

    percent between 2010 and 2015.

    Andrew Weber is an Analyst for and is a graduate of New York

    University and New York University School of Law.

    Indias real estate market is on a high growth curve. The industry isprojected to grow

    to US$50 billion by the end of FY2010 at an average rate of 20%. Looking at the bigger

    picture, the recession seems like a hiccup. Despite talks of price correction, the worse is

    definitely behind us.

    In this feature, we present our list of market leaders. The task was daunting and

    complicated. Instead of a list that says Indias Top 20, we divided the players regionally

    based on their headquarters. Many are national players but some are purely regional players

    and hence it would be unfair to compare them. The idea was to identify national as well as

    local leaders. Of course, all such lists are subject to market dynamics.


    Headed by: DrKasha Pal Singh, Chairman

    About:With a track record of 64 years, DLF is Indias largest real estate company in terms

    of revenues, earnings, market capitalization and developable area. It currently has pan India

    presence across 30 cities with approximately 238 million sqft of completed development and

    413 million sqft of planned projects, of which 56 million sqft. of projects are under

    construction during FY10.

    Project Spectrum: Residential, townships, commercial complexes, IT Parks, hotels,

    multiplexes, etc.

    Quick fact:Only listed real estate Company included in the BSE Sensex, NSE Nifty, MSCI

    India Index and MSCI Emerging Markets Asia Index.

    Latest: Will take its luxury mall DLF Emporia (already operational in New Delhi) to other

    big cities such as Hyderabad and Chennai.

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    Headed by: Rotas Gael, CMD

    About: Over the past 22 years, Omaxi has established itself through diverse range of

    residential and commercial projects. The company at present has 53 projects under execution

    and planning. Omaxe Ltd was the first Construction Company of northern India to receive an

    ISO 9001:2000 Certification.

    Project Spectrum: Integrated townships, Group housing, SEZs, Shopping malls &complexes

    and hotels.

    Latest: Has entered into infrastructure sector through Omaxe Infrastructure & Construction

    Ltd (OICL), a wholly owned subsidiary. OICL has bagged the first contract to construct

    Highway and three high level bridges in Punjab. The contract is awarded by Greater Mohali

    Area Development Authority and its value is pegged at Rs704 million.


    Headed by: Ramesh Chandra, Executive Chairman

    About:Established in 1972, Unitech is today Indias leading real estate developer in India. It

    is the first developer to have been certified ISO 9001:2000 in North India.

    Project Spectrum: Unitech offers diversified projects across residential, commercial/IT parks,

    retail, hotels, amusement parks and SEZs segments. Unitech was the first real estate company

    to be part of the National Stock Exchanges NIFTY 50 Index. The company has over 600,000

    shareholders. Unitech and Norway based Telenor Group came together to build Uninor - a

    telecommunication services company providing GSM services across India.

    Latest: Has ventured into the infrastructure business by launching Unitech Infra.


    Headed by: Sushi Ansell, Chairman

    About: Established in 1967 as a family business, Ansell API today is clearly amongst the real

    estate leaders of India. Having established itself very strongly in the NCR region, Ansell API

    is now focusing on ventures in cities like Bhatia, Mohali, Amritsar, Ludhiana, Jalandhar,

    Jaipur, Jodhpur, Ajmer, Sonata, Pan pat, Carnal, Kurukshetra, Faridabad, Gurgaon, Greater

    Noida, and Ghaziabad, Meerut, Agra, Luck now, to name a few. Ansell API has till date,

    developed and delivered more than 190 million sq ft. The company currently has a land

    reserve of about 9,335 acres.Project Spectrum: Integrated Townships, Condominiums, Group

    Housing, Malls, Shopping Complex, Hotels, SEZs, IT Parks and Infrastructure and Utility

    ServicesLatest: Raised Rs231.4 core through private placement of shares with institutional

    investors for reducing its debt and execute ongoing projects.

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    Headed by: Pradeep Jain, Chairman

    About: Incorporated in July 1990 by Mr. Jain in New Delhi, Parsvnath today has a

    substantial pan India presence in over 45 cities across 16 states. The company has emerged as

    one of the most progressive and multi-faceted real estate and construction entities in India.

    Project spectrum: Housing (premium, mid-market as well as affordable), office complexes,

    shopping malls & hypermarkets, hotels, multiplexes, IT Parks and SEZs.

    Quick fact: First real estate Company to have integrated with ISO 9001, 14001 and OHSAS


    Latest update: Has partnered with Red Fort Capital to execute a Concession

    Agreement with DMRC for development of a prime Grade a office project in New Delhis

    Connaught Place.With property boom spreading in all directions, real estate in India is touching new

    heights. However, the growth also depends on the policies adopted by the government to facilitate

    investments mainly in the economic and industrial sector. The new stand adopted by Indian

    government regarding foreign direct investment (FDI) policies has encouraged an increasing number

    of countries to invest in Indian Properties.

    India has displaced US as the second-most favored destination for FDI in the world.

    As the investment scenario in India changes, India which has attracted more than three times

    foreign investment at US$ 7.96 billion during the first half of 2005-06 fiscal, as against US$

    2.38 billion during the corresponding period of 2004-05, making India amongst the

    "dominant host countries" for FDI in Asia and the Pacific (APAC).

    The positive outlook of Indian government is the key factor behind the sudden rise of

    the Indian Real Estate sector - the second largest employer after agriculture in India. This

    budding sector is today witnessing development in all area such as - residential, retail and

    commercial in metros of India such as Mumbai, Delhi & NCR, Kolkata and Chennai. Easier

    access to bank loans and higher earnings are some of the pivotal reasons behind the suddenjump in Indian real estate.

    Real estate is "Property consisting of land and the buildings on it, along with its

    natural resources such as crops, minerals, or water; immovable property of this nature; an

    interest vested in this; (also) an item of real property; (more generally) buildings or housing

    in general. Also: the business of real estate; the profession of buying, selling, or renting land,

    buildings or housing..
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    In the laws of the United States of America, the 'real' in 'real estate' means relating to

    a thing as distinguished from a person. Thus the law broadly distinguishes between 'real'

    property (land and anything affixed to it) and 'personal' property or chattels (everything else,

    e.g., clothing, furniture, money). The conceptual difference was between 'immovable

    property', which would transfer title along with the land, and 'movable property', which a

    person could lawfully take and would retain title to on disposal of the land.


    Real estate as "real property" in the U.K.

    In British usage, "real property", often shortened to just "property", generally refers to

    land and fixtures, while the term "real estate" is used mostly in the context ofprobate law,

    and means all interests in land held by a deceased person at death, excluding interests

    in money arising under a trust for sale of or charged on land.As one main object of "probate"

    is to "prove" title to the real estate interests in the property held by a deceased person at the

    time of death, and the earliest recorded use the word in this capacity is 1463, it is reasonable

    to assume this tradition dates back to the death of the first owner of the 'allodia land' referred

    in the etymology section above to die.

    Real estate in Mexico and Central America

    Real estate business in Mexico, Canada, Guam, and Central America operates

    differently than in the United States. Some similarities include legal formalities (with

    professionals such as real estate agents generally employed to assist the buyer); taxes need to

    be paid (but typically less than those in U.S.); legal paperwork will ensure title; and a neutral

    party such as a title company will handle documentation and money to make the smooth

    exchange between the parties.

    Prices are often much cheaper than most areas of the U.S., but in many locations,

    prices of houses and lots are as expensive as the U.S., one example being Mexico City. U.S.

    banks have begun to give home loans for properties in Mexico, but, so far, not for other Latin

    American countries.One important difference from the United States is that each country has

    rules regarding where foreigners can buy. For example, in Mexico, foreigners cannot buy

    land or homes within 50 km (31 mi) of the coast or 100 km (62 mi) from a border unless they

    hold title in a Mexican Corporation or a Mexican trust In Honduras, however, they may buybeach front property directly in their name.
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    There are different rules regarding certain types of property: ejidalland communally

    held farm propertycan be sold only after a lengthy entitlement process, but that does not

    prevent them from being offered for sale.

    Real estate agents in Costa Rica currently do not need a license to operate, but the

    transfer of property requires a lawyer. CCCBR (Camera Costarricense de Corridors de Benes

    Raikes) is the only official body that represents the Real Estate industry to the government.

    The Costa Rica MLS is the official MLS of the Costa Rica Chamber of Real Estate Brokers

    Board. The Chamber institutes the rules, regulations and ethical guide for officially licensed

    brokers in Costa Rica.

    In Mexico, real estate agents do not need a license to operate, but the transfer of

    property requires a notary public.

    Real estate in Thailand and south East Asian countries

    In Thailand it is not possible for a foreigner to own land but property can be

    purchased then Land acquired under a 30 year lease option; Until recently it was considered

    by most legal advisors that the ownership of land by a foreigner through a Thai Limited

    Company was acceptable, although the Law clearly states that foreigners cannot own land in

    Thailand. The Government has now made clear that such ownership may be illegal. The

    legitimacy of such ownership depends on the status of the Thai Shareholders who must be

    shown to be active and financially participating shareholders.


    In the Philippines, one of the growing businesses in the country is the real estate

    industry.[8]Aside from the development and rising oftall buildings and establishment in

    the metropolitan area, nearby provinces are now on the stage of land development with its

    continuous expansion for horizontal development projects in the nearby provinces suchas Laguna, Cavite, Rizal, Bulacan,Pampanga and Barangays.

    The major expansion in vertical real estate development projects are in Cebu in

    theVishaysand Davao in Mindanao, where medium to high rise buildings are beginning to

    sprout in the two southern capitals.Names and the similarities between high quality internet

    domain names and real-world, prime real estate.
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    The legal arrangement for the right to occupy a dwelling in some countries is known

    as the housing tenure.

    Types of housing tenure include owner, Tenancy, cooperative, (individually parceled

    properties in a single building), public housing, squatting, and cohousing. The occupants of a

    residence constitute a household.Residences can be classified by, if, and how they are

    connected to neighboring residences and land. Different types of housing tenure can be used

    for the same physical type. For example, connected residents might be owned by a single

    entity and leased out, or owned separately with an agreement covering the relationship

    between units and common areas and concerns.

    . It is not clear if all debt and equity investments are counted in the categories equities and



    In recent years, many economists have recognized that the lack of effective real estate

    laws can be a significant barrier to investment in many developing countries. In most

    societies, rich and poor, a significant fraction of the total wealth is in the form of land and


    In most advanced economies, the main source of capital used by individuals and small

    companies to purchase and improve land and buildings is mortgage loans (or other

    instruments). These are loans for which the real property itself constitutes collateral. Banks

    are willing to make such loans at favorable rates in large part because, if the borrower does

    not make payments, the lender can forecloseby filing a court action which allows them to

    take back the property and sell it to get their money back. For investors, profitability can be

    enhanced by using an off plan or pre-construction strategy to purchase at a lower price which

    is often the case in the pre-construction phase of development.

    But in many developing countries there is no effective means by which a lender could

    foreclose, so the mortgage loan industry, as such, either does not exist at all or is only

    available to members of privileged social classes.
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    A successful project is always inspired by a successful person. Behind fortune

    infra lines a young and enthusiastic Mr.B.SeshagiriRao as its CMD. He started his business

    career with a great vision of providing quality life to discerning clientele. He is an

    accomplished charted accounted and his forte is finance, administration and leading

    marketing terms. Mr..B.Seshagiri Rao has over a decade of experience in auditing and

    consulting with some of the top companies in India. He enjoy a credible reputation among

    client circles.

    At fortune infra Mr. Rao excels in corporate planning, finance and strategy. He

    overseas day-to-day activities of the company and help other director in investments and new

    ventures. His zeal of excellence is transferable and fortune infra terms function in similar

    spirit. MrRao values business ethics and believes in industrious approach to all his projects.


    To make fortune infra as one of the fortune 500 companies. To provide one lakh jobs as early as possible. To share the wealth through knowledge to the society. To develop knowledge based society for beautiful and powerful India. To provide serene &blissful life.


    Integrate building technology with nature and mankind. To meet excel fortune clients expectation through accountability, hard work and


    constant pursuit of highest standards of quality.

    To work with strategic planning and enduring perseverance to achieve customersatisfaction, stake holder benefits and economic growth for the organization.


    The companys operations during this year are very well. Presently, your company

    is executing the following projects:


    An ultra-modern township being classically developed in 100 Acres of land to match the

    requirement upper class customers with 400&1000 sq.yards sizes near Kadthal village,

    adjacent to Srisailam Highway in the suburbs of Hyderabad.

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    Fortune Times is started to cater the needs of the middle and lower middle income

    group people to provide residential plots in 3 sizes. The highlight of this project is it

    facilitates the payment of the plot cost in easy installments. This project is also is being

    developed in 100 Acres of land as an extension to the Fortune Butterfly City venture.

    Fortune Weekend Homes:

    Fortune week end homes project is a unique of its kind in Hyderabad. This venture is

    planned to provide 3 sizes of developed residential plots with dwelling houses which are

    excellent for the weekend stay of the proud owners. Further, your company could able to

    establish good contacts, which will be materially converted into business during the financial

    year 2010-2011. Your company is also planning to diversify in various infrastructural

    projects in the nearest future.


    With the announcement of Fab City, Hardware Park, Nanotech Park near Shamshabad

    International Airport, on Sri Srisalaim State Highway, the place has become a home to a

    cluster of world class gated communities, changing the perception of living. The small

    confines are dissolved. The scope of living is expanded. The art of fine living comes designed

    with all facilities incorporated for a happy life. The bar on living standards raised and set

    precedence. One such gated community is Fortune Butterfly City.

    Fortune Butterfly City is a well-planned, high quality gated lifestyle community

    situated in between Kadthal and Dasarlapalli, KandukurMandal, on Sri Sailam Highway. The

    township is planned in 100 acres in its first phase with all conceivable facilities like security,

    health, education, entertainment, parks, restaurants, sports, boating, greenery and well-laid

    paths. The layout fosters freedom of living, happiness, laughter, a sense of community well-

    being, spaces and clean environment. 48% of its total land is open spaces with breathtaking


    This is the essence of Butterfly City - The brighter, happier world that is being

    brought to you in Hyderabad's Garden of Eden. The locale around Shamshabad has never

    seen anything like thisNor have you, for that matter! Experience the many hues of life in

    Butterfly City. Experience life, appreciate the Opportunity.

    Butterfly City is a well-planned self-sufficient high quality township situated in

    between Kadthal and Dasarlapalli, KandukurMandal, R.R.Dist,A.P. For the first time a dream

    lifestyle is being offered to all classes of people on such a mammoth scale.

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    This township has been planned in 100 Acres in the First Phase and 300 acres of

    land in the Second Phase . 48 % of its total land area is open & surrounded by breathtaking

    ambience, laden with greenery. Fortune Butterfly City will be a hub for all the assured

    facilities of security, health, education, well-connected transport and communication. It will

    also have fully developed infrastructure with an easy access to all the amenities providing

    leisure and happiness, amusement and pleasure, boost of energy and eternal peace to its



    With the announcement of Fab City, Hardware Park, Nanotech Park near

    Shamshabad International Airport, on Sri Sailam State Highway, the place has become a

    home to a cluster of world class gated communities, changing the perception of living. The

    small confines are dissolved. The scope of living is expanded. The art of fine living comes

    designed with all facilities incorporated for a happy life. The bar on living standards raised

    and set precedence. One such gated community is Fortune Butterfly City.

    Fortune Butterfly City is a well-planned, high quality gated lifestyle community

    situated in between Kadthal and Dasarlapalli, KandukurMandal, on Sri Sailam Highway. The

    township is planned in 100 acres in its first phase with all conceivable facilities like security,

    health, education, entertainment, parks, restaurants, sports, boating, greenery and well-laid

    paths. The layout fosters freedom of living, happiness, laughter, a sense of community well-

    being, spaces and clean environment. 48% of its total land is open spaces with breathtaking


    This is the essence of Butterfly City - The brighter, happier world that is being

    brought to you in Hyderabad's Garden of Eden. The locale around Shamshabad has never

    seen anything like this. Nor have you, for that matter! Experience the many hues of life in

    Butterfly City. Experience life, appreciate the Opportunity.

    Butterfly City is a well-planned self-sufficient high quality township situated in

    between Kadthal and Dasarlapalli, KandukurMandal, R.R.Dist,A.P. For the first time a dream

    lifestyle is being offered to all classes of people on such a mammoth scale. This township has

    been planned in 100 Acres in the First Phase and 300 acres of land in the Second Phase. 48 %

    of its total land area is open & surrounded by breathtaking ambience, laden with greenery.

    Fortune Butterfly City will be a hub for all the assured facilities of security, health, education,

    well-connected transport and communication. It will also have fully developed infrastructure

    with an easy access to all the amenities providing leisure and happiness, amusement and

    pleasure, boost of energy and eternal peace to its residents.

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    Services we offer:

    Serene and Blissful Life spaces Wild Green and World-class Abodes Application of modern technology and Science Timely Delivery Financial Assistance and schemes Investments and Appreciation analysis Advanced Management System Highest of quality standards

    Future services:

    Resorts Educational Institutions/International Schools Foreign Realty Investments Hospitality Industry Financial, BPO, KPO Power Generation


    Here is the holiday home you've always wanted. Weekend Homes at Fortune

    Butterfly City offer an elegant tropical lifestyle with all modern conveniences provided for

    your comfort and convenience. The beautiful villas with private pools feature graceful

    architecture, functional floor plans, private courtyards, pools and striking landscaping.

    Spread over 100-acres, Weekend Homes represent the essence of relaxed and

    refined lifestyle in a secured, harmonious eco-friendly environment. They offer privacy

    without the insecurity of isolation.

    Each of the villas incorporates a unique architectural blend of vaastu and pyramid

    ology that helps in creating positive energy around. The esoteric geometric shape of the

    structure in league with the magnetic field promote healthy environment in and around.

    This exclusive private community of Weekend Homes affords the discerning

    customer an unparalleled investment opportunity. Virtually guaranteed returns on real-estate

    ownership coupled with a privileged vacation home purchase is the enviable choice of a

    select few owners at The Fortune Butterfly City.

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    For A Change, Shift over to Clouds We believe living is more than being. Its

    essence lies in evolving towards self-actualization. And a home is more than a transient

    shelter. Its essence lies in its capacity for accretion, in its quality of representing the persona

    of the people who live in it. Fortune Clouds Park draws its inspiration from the infinite,

    shape-shifting dances of clouds. Puffy one time, piled up at another time, flat sometimes and

    layered at another moment, they demonstrate remarkable malleability for transformation.

    Fortune Clouds incorporates several features that lend space for innovation and

    accretion. It has in place all the essential elements that combine to make it a vibrant, socially

    and economically sustainable living community.

    We believe 'development' is more than creating beautiful residential orcommercial spaces. It is creating living environments with character which are well planned,

    cohesive, connected and allow people to live, work and enjoy themselves at close quarters.

    We move an extra mile or make an extra effort towards that end. Fortune Clouds Park reflects

    that commitment quite eloquently. It excels the expectations of our customers in every way.


    Exquisite, yet affordable is how we define it. Fortune Times is a 100-acre open-

    plotting venture within the integrated township of Fortune Butterfly City. The venture is

    promoted in line with the aspirations of the vast and growing middle class community, who

    constitute the pillars of the current vibrant Indian economy Fortune Times allows them the

    opportunity to acquire property at Fortune Butterfly City at easily affordable price and on

    convenient payment terms.

    Payments can be made on monthly installments basis over a period of 24-36

    months @ Rs.5000/- per month.

    As members of Fortune Times, they have access to the finest facilities in a premiermaster planned residential locality. Nothing is left to imagination. None of the facilities fall

    short of expectations in any respect.

    Commonly shared facilities include a Community Clubhouse, Gym, Pay Areas, School,

    Tennis Court, Health Centre, Shopping Zone, Party Lawns, Parking Zones and Indoor


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    20 min drive from South East Asias biggest Rajiv Gandhi International Airport. Fab city goes live, 120MW modules and 60MW solar cells produced by Feb 2009. Fab city currently employees 600 people expected lto increase employees to 5000 More than 6 companies operative in fab city, paying way to more town ship


    Rajiv nanotech park APHB Township in 600 Acres. Hardware park in 4000 acres. IT SEZs. Download approved site layout. International Gitanjaligems&jewellery park. Apparel park. Aghakhaninternationalscholl. Outer ring road. Star hotels. Air cargo complex. Very close to Mucherla IT cluster n 700 acres. Tummaluru IT cluster Completely free from pollution. Asiasbiggestamusementpark. Surrounded by prestigious private ventures. PV express highway from Mehdipatnam to Shamshabad(work in progress). Download approved site layout . DTCP approval with HUDA norms. Gated community (layout surrounded by security fencing) Master planners, architects&engineersjurong India (singapure). 100% vastu compliant. Wide black top roads -60ft main road,40ft internal roads. Underground power cabling system. Underground drainage. Beautiful landscaped gardens. 6 acres natural lake,boating Wi-fi enabled club house.

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    State-of-the-art swimming poll. Hitech gymnasium. Indoor/outdoor sports area. Electronic games park. Illuminated tank bund. Childrenspark. Abundant drinking water sources. Over head tank. Rain water harvesting. Commercial spaces. ATM/bank. Green walkways. Health spa/clinic,crche,Laundromat, milk diary. World 14 wonders miniature park. Round the clock security. Avenue plantation. Rock formations. Solar electronic lamps in parks. Site is well connected by state highways Srisailem road and having 4 side connective


    Plot sizes in 500&1000sq.yds. Property management service.

    Number of Workers employed in the Firm:

    At present more than 200 employees are working in the company. Recruitment in

    FORTUNE INFRA DEVELOPERS is mainly though internal sources. Promotion is mainly

    based on seniority. It has good industrial relations with its workers. The company provides

    retirement benefits in the form of provident fund, superannuating and gratuity. Contributions

    to the provident fund are made at prescribed rates to the Provident Fund Commissioner and

    absorbed in the profit and loss account liability in respect of Superannuating benefits to

    certain employees is Contributed by the Company of life Insurance Corporation of India

    against a master policy at 13% of the basic salary of such employees. The company has

    taken a group gratuity insurance policy with Life Insurance Corporation of India to secure

    gratuity liability.

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    Fortune infra developers having a 10 departments are having they are

    Human resource management Accounting Administration Marketing Purchasing Transport Loans Legal Engineering IT Admin


    Pre-recruitment process Recruitment process Joining formalities Employee data base Conformation formalities Employee relation Report generation Exit formalities


    Routine functions of accounting department To prepare interim financial statements To prepare annual financial statements Security of accounts Inventory management


    Accounting Personal Budget/financial analysis Management Public information

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    Focus on the customer Monitor the competition Own the brand Find& direct outside vendors Create new ideas Communicate internally Manage a budget Understand the ROI Set the strategy, plan the attack, and excite


    Purchasing materials Evaluating price Prepare work and accounting Policy compliance


    Control of motor transport Control of Bihar state road Transport Corporation Motor vehicles taxation Shipping and navigation on inland water ways declared by the parliament by law to be

    national waterways regarding to mechanically prospered vessels

    Shipping and navigation on inland water ways, rail ways and minor rail ways , ferries Rotating on tires Control of all officers serving with transport department


    Shelving and checking the order of books in the stacks Circulating materials and assisting patrons at service desks Searching for materials Shipping and relocating library materials Other projects as needed

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    Plot No:448,

    Road No:20,

    Jubli Hills



    Board of directors:

    1)Mr. B.SeshagiriRao-Managing Director

    2)Mr. P.RameshBabu-Director

    3)Mr. HariChalla-Director


    M/s VSPN&Co.,

    Charted Accountants

    Flat No:4, Rukmini Apartments,

    Yousufguda Check-post,



    Syndicate Bank


    ICICI Bank


    HDFC Bank


    State Bank of India

    A C Guards

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    1. Asset Liability Management is the ongoing process of formulating implementing,

    monitoring, and revising strategies related to assets and liabilities to achieve financialobjectives, for a given set of risk tolerances and constraints.

    2. ALM is critical for the sound financial management of any entity that invests to meet

    future cash flow needs within constraints. ALM is broader than risk mitigation1 and is

    inextricably linked to the liability and investment management functions.

    3. ALM is a vital element within an Enterprise Risk Management framework. Some

    companies use ALM as part of a strategic decision-making framework to exploit

    opportunities to create value and optimize their risk/reward profile


    An asset is anything of value that your company owns including cash. Assets get recorded

    on the balance sheet in terms of their dollar values. Remember, even if you used credit to

    purchase an asset, you still own it. Its full dollar value gets recorded on one side of the

    balance sheet as an asset, and the amount you owe gets recorded on the other side of the

    balance sheet as a liability.

    Types of assets:

    Current assets:

    These are assets with dollar amounts that continually change, for example, cash, accounts

    receivable, inventory or raw materials your company uses to make a product. They are listed

    on the balance sheet in order of their liquidity, or how fast they can be converted into cash.


    Companies, like individuals, can own securities such as stocks and bonds. Investments, like

    cash or property, are considered assets.

    Capital assets:

    Think of capital assets, also called plant assets, as permanent things your company owns.

    Land, buildings, equipment and vehicles are common capital assets. So are things like

    computers, furniture and appliances, as long as they remain for use within your business and

    are not items you sell.

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    Intangible assets:

    Patents, copyrights and other nonmaterial assets that have value are referred to as intangible.

    Fixed assets:

    These assets are acquired for long_ term use in the business .they is not meant for resale.

    Land and buildings, plant and machinery, vehicles and furniture etc. are some of examples of

    fixed assets.

    Liquid assets:

    These assets are also known as circulating, fluctuating or current assets. these assets can be

    converted into cash as early as possible. Current assets are cash, bank balance, debtors, stock,

    and investments.

    Fictitious assets:

    Fictitious assets are those assets which do not have physical form .they do not have any real

    value. Examples are loss on issue of shares, preliminary expenses etc.

    Wasting assets:

    Wasting assets are those assets which are consumed through being worked or used. Mines are

    the examples of wasting assets.


    Anything a company owes to people or businesses other than its owners is considered a

    liability. Liabilities are the obligations or debts payable by the enterprise in future in form of

    money or goods.

    Types of liabilities:

    Current liabilities:

    In general, if a liability must be paid within a year, it is considered current. This includes

    bills, money you owe to your vendors and suppliers, employee payroll and short-term loans.

    Long-term liabilities:

    A long-term liability is any debt that extends beyond one year, such as a mortgage.

    Fixed liabilities:

    These liabilities are payable generally after a long period of time. capital, loan debentures,

    mortgage etc.

    Contingent liabilities:

    These are not the real liabilities. Future events can only decide whether it is really a liability

    are not due to their uncertainty these liabilities are termed as contingent liabilities.

    Profit &loss account:

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    2. It is always prepared on a particular date and thus shows the position at that date not a


    3. It has no debit side and credit side. Not the words to and by are used before the names

    of the accounts shown therein. The headings are liabilities and assets.

    4. It shows the financial position of the business concern.

    5. It shows what the firm owes to others and also what other owes to the firm.

    6. The total of assets and liabilities always are equal.

    Arrangement of assets and liabilities in the balance sheet:

    1. Arrangement of assets:

    In order of liquidity

    In order of performanceCash in hand

    Cash at book


    Bills receivable

    Sundry debtors

    Stock plant& machinery




    Plant& machinery


    Sundry debtors

    Bills receivable


    Cash at bank cash in hand

    Arrangement of liabilities:

    In order of discharge ability in order of fixity

    Bills payable

    Trade creditors

    Bank overdrafts



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    Bank over drafts

    Trade creditors

    Bills payable


    In the accounting sense, an asset is an item of value owned by a company. Assets

    may be tangible physical items or intangible items with no physical form. Assets add value to

    a company, and are important to a company's continued success.As with assets, you may look

    at the wider world to gain an understanding of what's a liability. No one is particularly

    pleased when he or she is described as a "liability". This is so because the liability description

    is a negative one.

    In accounting, liabilities are obligations of the company to transfer something of

    value to another party. On a companys balance sheet, a liability may be a legal debt or an

    accrual, which is an estimate of an obligation.


    Assets are grouped in order of liquidity, not only because it makes sense but also

    because liquidity is the lifeblood of a company. Liquidity refers to the ease in which an asset

    can be converted to cash. Cash is therefore the most liquid of all assets.

    Assets that are very liquid are shown on the balance sheet as current assets. Current

    assets are assets that are expected to be converted to cash in 12 months or less. Those assets

    with convertibility exceeding twelve months are considered to be illiquid and are categorized

    as fixed or long-term assets.


    Cash Short-term investments Accounts Receivable Inventories Prepayments (Prepaid expenses)

    Many methods of depreciation calculation exist today, however major corporations usually

    use one of the following methods:

    Straight line

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    a. Debt to Financial institutions

    b. Bonds

    c. Debentures

    d. Mortgages

    Importance of current assets and current liabilities:

    Current assets represent assets that can be quickly transferred into money. Some of them are:

    a. Cash

    b. Cash equivalents

    c. Inventories

    d. Accounts receivable (these are the money that customers owe to the company for services

    or products provided)

    e. Current liabilities represent the short term obligations of the company. Some of them are:

    f. Accounts payable

    g. Short term debt

    Current assets and current liabilities should be compared over periods of time. It is

    good if the current assets have increased significantly over longer periods of time. This

    means that the company generates cash. On the other hand, it can be also interpreted as the

    company not being able to collect the money it has to take from its accounts receivable.If the current liabilities of the company are growing at a fast pace, then there might be some

    problem with the company. However, this is not always bad since the company may incur

    higher liabilities since it needs money to finance some of its goals. Finally, you should

    carefully study these indicators of the target company in order to determine its future

    potentials. You can quickly and easily obtain this information from financial statements.

    Role of assets and liabilities in a firm:


    The argument for the significant importance of emotional assets and liabilities in

    adding value to firms is acceptable but has not been widely addressed in the accounting

    literature. The literature on Balanced Scorecard and intellectual capital has attempted to

    address the issue of monitoring emotional assets and liabilities through non-financial

    performance measures but have been in a more superficial manner .A number of authors have

    attempted to theorize about the impact of the emotional state of a firms staff on work


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    However, there is little research done in conceptualizing how emotional assets and

    liabilities affect other types of assets and liabilities, namely, intellectual and accounting. The

    dearth of research in conceptualizing emotional assets and liabilities could be due to several

    reasons and some of which are common to assets and liabilities not recognized in financial

    statements. First, emotional assets and liabilities lack a uniform definition. Second, traditional

    financial reporting system recognition of assets and liabilities tends to exclude emotional

    assets and liabilities because they cannot be measured reliably. As a result, any costs incurred

    to enhance emotional assets in a firm are treated as an expense in the traditional financial

    reporting system.

    Previous research has demonstrated that the absence of intangibles such as

    emotional assets and liabilities in traditional financial reports leads to a systematic under

    valuation of firms. This has resulted in production of unrealistic and unrepresentative

    financial statements .Several authors agree that without the inclusion of emotional assets and

    liabilities financial statements are unable to indicate accurately the economic efficiency of a


    This conceptual paper discusses the relationship between accounting, intellectual

    and emotional assets and liabilities, and attempts to show that emotional assets and liabilities

    are of significance in determining the value of a firm. It then offers some guidance on how

    certain emotional assets and liabilities are to be monitored and disclosed. The paper then

    includes theories from psychology that may help explain future empirical research findings to

    validate the impact of managing emotional assets and liabilities on the value of a firm.


    All firms have assets of one type or another or a combination of a few types of

    assets. A financial statement reports a firms assets as current and non -current assets. The

    majority of non-current assets are tangible assets, except for goodwill, which is an intangible


    All the current and non-current assets covered in financial statements are

    accounting assets in that they can be clearly traced back to an accounting

    transaction.Although previous literature has proposed descriptions of emotional assets, these

    are not defined in relation to other asset types. This paper defines emotional assets as those

    assets that activate both intellectual and accounting assets, and emotional liabilities as those

    assets that de-activate both intellectual and tangible assets.

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    A wide variety of entities are faced with ALM related considerations. Such entities include:

    Insurance companies, banks and thrifts, investment firms, and other financial servicescompanies

    Pension and trust funds (e.g., endowments and foundations) Governments Other commercial or not-for-profit enterprises Individual investors



    ALM focuses on Economic Value.

    A consistent ALM structure can only be achieved for economic objectives.

    Economic value is based on future asset and liability cash flows. ALM uses these future cash

    flows to determine the risk exposure and achieve the financial objectives of an entity. An

    entitys financial objectives may include maximizing one or more of these values: economic

    value, accounting measures such as earnings and return on equity, or embedded value. For

    private pension plans, financial objectives may include the pattern of future funding. Various

    accounting measures are affected by rules that change the emergence of income and the

    reported book value of the assets and liabilities.

    These measures can sometimes distort economic reality and produce results

    inconsistent with economic value. Because ALM is concerned with the future asset and

    liability cash flows, the natural focus of ALM is economic value. Accounting measures or

    future funding requirements are often included as constraints within an ALM framework.

    Entities that focus on economic value tend to achieve their financial objectives more

    consistently in the long term.


    Liabilities and their associated assets are mutually dependent. manage the between

    the asset and liability cash flows to achieve economic and financial objectives. The mutual

    dependence principle applies to portfolios consisting of both assets and liabilities. It holds

    even if the assets and liabilities are affected by different economic factors, or even if asset

    and liability cash flows are fixed. Mutual dependence may be greater when the performance

    of one portfolio affects the performance of another portfolio. For example, the credited rate

    on the liabilities may influence the lapse/withdrawal rate, which in turn may require

    unexpected liquidation or reinvestment of assets.

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    Expected risk/reward trade-off tends to worsen as more constraints are imposed and

    as the constraints become more restrictive. An ALM framework contains internal and

    external constraints including investment policy requirements, rating agency expectations,

    regulatory issues, and required capital goals.

    For example, an investment policy may specify that no below investment grade

    bonds may be purchased and bonds downgraded to below investment grade must be sold

    within 30 days. This constraint forces a sale at a time when a bonds price is under short -term

    pressure and may offer an opportunity to investors not subject to this constraint.

    Another common example of constraints within an ALM context is the professional

    judgment constraints applied to outcomes generated by mathematical models. For example,

    traditional efficient frontier analysis is extremely sensitive to input assumptions, and slight

    adjustments to assumptions can produce very different efficient portfolio outcomes.

    Professional judgment is typically applied to temper the models outcomes by constraining

    asset class allocations and forcing additional portfolio diversification.


    The risks to which an entity is exposed and the associated rewards are determined

    by internal and external factors that change over time. ALM is an ongoing process. Risks an

    entity assumes and to which it is exposed are continuously changing. Internal factors arise

    from the financial objectives, risk tolerances, and constraints of the entity. External factors

    include interest rates, equity returns, competition, the legal environment, regulatory

    requirements, and tax constraints. Such factors often impact both assets and liabilities

    simultaneously, although the impact is not necessarily of the same magnitude or in the same

    direction. Furthermore, an entity may have different risk tolerances under different

    circumstances and for different time horizons. Accordingly, analyses, conclusions, and

    strategies relevant to a specific point in time need to be periodically reevaluated and updated.

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    Asset and liability cash flows cannot be projected with certainty. The dynamic

    environment as well as pure randomness create uncertainties in the portfolio cash flows and,

    hence, in the true risk exposure. Risk varies as the underlying risk factors (e.g., interest rates,

    equity returns, defaults, policyholder/customer behavior, lapses/withdrawals, pension

    shutdowns, etc.) change and as future expected cash flows is replaced by actual cash flows.

    This process reflects cash flows reacting to factor changes (e.g., interest-sensitive cash

    flows), truing up to actual experience, and results in revisions of future assumptions. The

    ultimate risk exposure will be a function of the actual cash flows.

    ALM requires the use of models to project future uncertain cash flows. In some

    cases, simple deterministic models can be used and ALM can be based on one set of expected

    future cash flows. In other cases, such as when future cash flows are expected to depend on

    future economic conditions, more complex models may be required to understand the

    interaction of the asset and liability cash flows.

    Stochastic models are often used to simulate future expected cash flows under

    various scenarios to help identify the associated risk exposures. These models produce

    statistical distributions of potential results and different ALM strategies can be evaluated by

    studying the range of results produced from modeling these strategies. Modeling can also be

    used to construct many possible futures or scenarios, and then, results across all the scenarios

    can be used to measure risk in the portfolio.

    Model risk is the additional risk created when the model does not adequately

    represent the underlying process or reality. There are two general classes of model risk: the

    risk of model misspecification, oversimplification, or outright errors, and the risk of a

    changing environment not anticipated in the model. For example, using a lognormal model of

    stock market prices produces a distribution with too few extreme value sample points (i.e.,

    that is not fat enough in the tails) to adequately assess the risk for some complex embedded

    options, such as guaranteed minimum death benefits. In addition, the volatility of equity

    returns varies over time and this may not be accurately captured in the model.

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    The overall risk of a portfolio may be reduced through hedging. Hedging plays an

    integral role in the ALM process. Once the risks associated with a portfolio or transaction has

    been identified, the existing risks can be modified to suit the entitys risk tolerances and

    financial objectives. Undertaking additional risks that partially or fully offset the existing

    risks may accomplish this goal.

    Hedging may be done at either the transaction or portfolio level. Hedging may be

    complete or partial, perfect or imperfect (i.e., cross hedging). Hedging instruments include

    assets, liabilities, and derivatives. An asset with a matching liability is a natural hedge. The

    time horizon over which the hedge is in place may vary, but should nevertheless be explicitly


    Risk can be controlled through diversification when the law of large numbers applies (e.g.,

    when risks are diversifiable). Hedging is a strategy available to reduce risk when the law of

    large numbers does not operate, such as when a stock market decline results in equity-linked

    guarantees of an annuity block of business being in the money for every annuity contract at

    the same time.

    Hedging may reduce some risks but often introduces other risks, such as

    counterparty risk and basis risk. Basis risk arises from imperfect or partial hedging, where the

    hedging instruments are not perfectly negatively correlated with the risks being hedged. In

    some instances, an imperfect hedge may even increase the overall risk.

    As the overall risk is reduced through hedging, the expected reward normally decreases as




    For a pension plan, economic value is the value of plan surplus taking into account

    the level of contributions required to achieve that surplus. In practice many entities do not

    focus on economic value and focus instead on accounting earnings. Accounting results are

    relevant for many reasons: they are reported to regulators, shareholders, and to the public;

    they may be the basis for measuring managements performance and have other uses.

    However, ALM is internally consistent only if it is based on economic value. All of the

    traditional risk metrics (duration, convexity, VaR, CTE or TailVaR, key rate sensitivity

    analysis, etc.) focus on the asset and liability cash flows for the purpose of measuring the

    exposure of economic surplus to changes in financial variables.

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    If an entity is not concerned with economic value, it does not need ALM. However,

    many entities who have managed their assets and liabilities based on the accounting treatment

    ended up mismatching their assets and liabilities and ultimately failed.

    Today, there are still companies that do not focus on the economic value and permit

    unrewarded mismatches on an economic value basis. These mismatches are not to be

    confused with accounting asset and liability mismatches, which may actually be naturally

    occurring in ALM.

    Process of assets and liabilities management:


    An effective ALM process begins with the support of the entitys senior

    management. Ongoing communication is essential. The process consists of five fundamental



    The purpose of ALM is not necessarily to eliminate or even minimize risk. The

    level of risk will vary with the return requirement and entitys objectives. Financial objectives

    and risk tolerances are generally determined by senior management of an entity and are

    reviewed from time to time.


    All sources of risk are identified for all assets and liabilities. Risks are broken down

    into their component pieces and the underlying causes of each component are assessed.

    Relationships of various risks to each other and/or to external factors are also identified.


    Risk exposure can be quantified

    1) Relative to changes in the component pieces,

    2) As a maximum expected loss for a given confidence interval in a given set of scenarios,

    3) By the distribution of outcomes for a given set of simulated scenarios for the component

    piece over time. Regular measurement and monitoring of the risk exposure is required.

    Formulate and Implement Strategies to Modify Existing Risks

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    ALM strategies comprise both pure risk mitigation and optimization of the risk/reward

    tradeoff. Risk mitigation can be accomplished by modifying existing risks through techniques

    such as diversification, hedging, and portfolio rebalancing. For a given risk tolerance level, a

    given set of investment opportunities, and a given set of constraints, optimization ensures that

    the portfolio has the most desirable risk/reward tradeoff. Optimization presupposes that the

    management team has been previously educated on the risk/reward profile of the business

    and understands the necessity to take action based on ALM analysis. Practitioners are

    cautioned not to put undue reliance on the results of a mechanical calculation. Professional

    judgment is an important part of the process.

    Monitor Risk Exposures and Revise ALM Strategies As Appropriate

    ALM is a continual process. All identified risk exposures are monitored and

    reported to senior management on a regular basis. If a risk exposure exceeds its approved

    limit, corrective actions are taken to reduce the risk exposure. For pension plans, monitoring

    current financial status and possible short-term outcomes is very helpful in managing pension


    Operating within a dynamic environment, as the entitys risk tolerances and

    financial objectives change, the existing ALM strategies may no longer be appropriate.

    Hence, these strategies need to be periodically reviewed and modified. A formal, documented

    communication process is particularly important in this step.


    Our liquidity risk management policies are designed to ensure we have a sufficient

    amount of financing, even when funding markets experience persistent stress. We seek to

    maintain a long-dated and diversified funding profile, taking into consideration the

    characteristics and liquidity profile of our assets.

    Our approach to asset-liability management includes:

    Conservatively managing the overall characteristics of our funding book, with a focuson maintaining long-term, diversified sources of funding in excess of our current


    Actively managing and monitoring our asset base, with particular focus on theliquidity, holding period and our ability to fund assets on a secured basis.

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    This enables us to determine the most appropriate funding products and tenors. Lessliquid assets are more difficult to fund and therefore require funding that has longer

    tenors with a greater proportion of unsecured debt.

    Rising secured and unsecured financing that has a sufficiently longer term than theanticipated holding period of our assets. This reduces the risk that our liabilities will

    come due in advance of our ability to generate liquidity from the sale of our assets.

    Because we maintain a highly liquid balance sheet, the holding period of certain of

    our assets may be materially shorter than their contractual maturity dates.

    Our goal is to have sufficient total capital (unsecured long-term borrowings plus

    total shareholders equity) so that we can avoid reliance on asset sales (other than our GCE).

    However, we recognize that orderly asset sales may be prudent or necessary in a severe or

    persistent liquidity crisis. The target amount of our total capital is based on an internal

    funding model which incorporates the following long-term financing requirements:

    The portion of financial instruments owned, at fair value that we believe could not befunded on a secured basis in periods of market stress, assuming stressed fair values.

    Goodwill and identifiable intangible assets, property, leasehold improvements andequipment, and other illiquid assets.

    Derivative and other margin and collateral requirements. Anticipated draws on our unfunded loan commitments. Regulatory requirements to hold capital or other forms of financing in excess of what

    we would otherwise hold in regulated subsidiaries.

    Asset/Liability Management Philosophy:

    Adopting an asset/liability management philosophy is an important first step in

    drafting ALM policy. The philosophy should set out the broad goals and objectives of the

    credit unions asset/liability portfolio, as established by the board of directors, who represent

    the membership at large. This philosophy governs all ALM policy constraints and helps

    address new situations where policy does not yet exist.

    While goals and objectives will differ depending upon the circumstances