Asset-liability management is the term where the maturity of an asset is similar to the time that the liability expires. Which of the following is not good asset-liability matching? (Points: 4)
Brand new quality car financed by a 5-year loan.
Retirement fund for a 35-year old containing commercial real estate.
Loan from a commercial bank to a corporate account for working capital funded by the bank's retail checking accounts (consumer's deposits in checking accounts).
re-financing a credit card, exclusively used for grocery purchases in the amount of $1,431.49, by taking out a second mortgage on the consumer's home.
used car purchase financed by a 3-year car loan.
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To determine which of the following is not a good asset-liability match, we need to assess if the maturity of the asset matches the time that the liability expires. Let's analyze each option:
1. Brand new quality car financed by a 5-year loan: This option potentially aligns asset and liability. If the loan term matches the expected useful life of the car or its expected resale value, it can be considered a good asset-liability match.
2. Retirement fund for a 35-year old containing commercial real estate: This is not a good asset-liability match. Commercial real estate is typically a long-term investment, suitable for generating income during retirement. The asset's maturity does not align with the time the liability (retirement) will expire.
3. Loan from a commercial bank to a corporate account for working capital funded by the bank's retail checking accounts: This is not a good asset-liability match. Working capital needs are typically short-term, while retail checking accounts may represent short-term liabilities. However, if the loan term exceeds the short-term nature of the working capital needs, it may not be a good match.
4. Re-financing a credit card, exclusively used for grocery purchases in the amount of $1,431.49, by taking out a second mortgage on the consumer's home: This option is not a good asset-liability match. Credit card debt is typically short-term, while a second mortgage on a home is a long-term liability. The maturity of the asset (credit card debt) does not align with the time the liability (second mortgage) will expire.
5. Used car purchase financed by a 3-year car loan: This option potentially aligns asset and liability. If the loan term matches the expected useful life of the used car or its expected resale value, it can be considered a good asset-liability match.
Based on the analysis, option 2 (retirement fund containing commercial real estate) and option 4 (re-financing a credit card by taking out a second mortgage on the consumer's home) are not good asset-liability matches.