Q$.$ No$.4$

$($i$)$ What is Asset Liability Management $($ALM$)?$ Discuss ALM practices at banks.

$($ii$)$

A US bank recently disbursed a $$2$ million loan of which $$1\mathrm{.}6$ million is currently outstanding.

According to the bank's internal rating model, the beneficiary has a $1\%$ chance of defaulting

over the next year. In case that happens, the estimated loss rate is $30\%.$ The probability of default

and the loss rate have standard deviations of $6\%$ and $20\%,$ respectively. Determine the expected

and unexpected loss figures for the bank.