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This chapter discusses liquidity management theories such as the commercial loan theory, shiftable theory, and anticipated income theory. It assesses the reasons for most liquidity problems of banks, highlights the need for liquidity planning, and presents a liquidity model for banks. It shows that liquidity management in a bank is closely linked with its assets-liabilities strategy. A fully matched position is ideal — a self-liquidating balance sheet — but this is not observable in real life, because of the conflicting objectives of a bank and its borrowers, nor is it desirable due to its negative impact on profitability; a reasonable level of mismatch enhances profitability.

Articulates the basics of global games. Applies the global game arguments of Morris and Shin (1998, 2000) to sovereign liquidity crises and shows how the fundamental and sunspot views of crisis can be reconciled. Highlights the welfare costs of coordination failure and explores how policy options such as sovereign debt standstills, liquidity management, and capital controls may help mitigate these costs.

Despite the significant economic and institutional progress experienced by the main economies of the region over the last decade or so, Latin America still experiences substantial macroeconomic instability. Replacing the chronic domestic imbalances of the past, much of this instability stems from the occasional but sharp tightening of a country's access to international financial markets. Facing this scenario, both the private and the public sectors are compelled to design an appropriate international liquidity management strategy. Unfortunately, although this is not a daunting task at the microeconomic level (i.e., given prices), there is still very limited understanding of its macroeconomic counterpart. This chapter attempts to shed some light on this issue, drawing from some of the author's recent theoretical and applied work in this area. It addresses three sequential questions: (1) Why is there a need for decentralized and centralized international liquidity management? (2) What are the types of structural and macroeconomic policies that a government should pursue, even if the private sector is using socially efficient prices in deciding its international liquidity position? (3) When and how should the government attempt to force the private sector to increase its international liquidity position?

Chapter 2 demonstrates the author’s pragmatic approach regarding ALM and funding ratio maximization as well as his processes. It gives an overview of ALM risk management and shows how to build an ALM strategy with the right risk metrics. The chapter shows various methodologies for calculating liabilities and for each methodology, the impacts on the funding ratio, contributions, and the investment strategy. Based on actual examples, this chapter teaches decision-makers to assess where risks and tricks are located, ALM investment strategies and how to measure their risk aversion in order to select the right investment strategy (risk allocation of the return-seeking portfolio, liability hedging strategy, performance and horizon of investment). It provides techniques for assessing the efficiency of the management of the liquidity. This chapter teaches decision-makers to define the targets of each component of an ALM framework, a powerful tool for monitoring the efficiency of the investment strategy.

This chapter discusses theories and empirical findings related to the capital structure of REITs based on recent research. REITs are capital-intensive firms. The consequence is that capital structure policies play an important role in REIT operations and management. Understanding capital structure is crucial for investors to analyze risks and returns of REITs. Because REITs have several unique features, they provide an interesting laboratory to examine issues related to capital structure. The discussion of REIT issues includes topics such as determinants of capital structure, security issuance decisions, financial liquidity management for cash policy and bank lines of credit, as well as the impact of financing on investment. In summary, REIT capital structure is likely to continue to be a topic of interest for both practitioners and academics in the future.