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Asset/Liability

Generic Cash Flows: A Building Block of Asset/Liability Forecasts

Cash flows represent the foundation of asset/liability management (ALM) modeling, and poorly projected cash flows can lead to a misunderstanding of risk, resulting in poor management decisions.

Understanding cash flows, the different types (immediate, amortizing, balloon and bullet), their characteristics, and how they perform or act in a forecast is therefore an important building block for understanding the results when a financial institution attempts to model interest rate risk accurately through reporting.

This paper focuses on the typical characteristics of generic cash flows that can be found on most balance sheets and how they perform or act in a forecast. In this paper, you’ll learn:

  • The importance of cash flows
  • Characteristics of cash flow that are common to all financial instruments
  • Options that affect cash flow, such as repricing and prepayments
  • How cash flow characteristics impact ALM modeling decisions

 

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