UNCTAD Virtual Institute for Trade and Development
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Sovereign Asset and Liability Management: An E-Learning Training Course
I. Balance Sheet Risks
I.i. Currency Matching
I.ii. Interest Rate Matching
I.iii. Maturity Matching
II. Methodologies
II.i. Initial Methodologies
II.ii. Advanced Methodologies


SALM is a component of a broader, institution wide risk management framework. As such, SALM should reflect the policies and objectives within this broader context.  Effective risk management requires clearly defined and articulated objectives, responsibilities, and reporting lines and functions.  Risk management policy is a tool to achieve the sovereign’s long-term economic goals and policies in congruence with its preferences for risk versus expected return.  Risks to the balance sheet: currency, interest, and maturity must be managed as well as potential off balance sheet items such as CL.  While even the most effective risk management strategy cannot eliminate risk, it can be a useful tool in preventing widespread losses that may result from the lack of an institutional framework for measuring risk, including management of the balance sheet.

The numerous quantitative and qualitative tools available to policymakers provide asset and liability managers with many options in assessing sovereign risk.  A basic conceptual approach may be used to analyze the risk-return characteristics of primary assets and liabilities or more comprehensive methodologies may be utilized.  For more rigorous analyses, the veracity of the data is paramount as models will only produce information as useful as the input being used in the calculations.  Many developing countries may find it difficult to implement some of the more advanced methodological techniques due to the absence of reliable time series data.  The numerous SALM methodologies allow policymakers and practitioners to decide for themselves which are most appropriate according to their SALM and risk management framework and broader economic objectives.




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