Contents

• This paper answers the following 2 questions –
• 1. Why are traditional measures of business financial performance, such as ROE and ROA not necessarily appropriate for financial institutions? Outline and explain some better measures of business financial performance.
• 2. Which of the three key risk gaps - duration gap, repricing gap or maturity gap, do you consider the most important to manage? Why do you think it should rank ahead of the other two gaps?

Description

The report is a strategic analysis of performance management and type of risk analysis applicable in financial institutions. The first part of the paper analyses the traditional performance measures which were earlier used in financial institutions to determine the performance of the organization. The paper goes on explain the limitations of these historical performance measures of return on assets and return on equity which is now considered as incompetent to determine financial growth and performance of an organization. The second part of the report highlights on the three major risk gaps namely repricing gap, maturity and duration gaps which occur due to change or any fluctuation in interest rate. The three key risks associated with financial institutions have been explained in brief. Furthermore, the paper takes to explain the significance of duration gap and how it is important to be managed when compared to other two gaps.