Mismatch is a term for situations where the assets and liabilities on a company’s balance sheet do not match or are inconsistent, often analyzed in situations involving management. Asset management – assets and liabilities.
Watching: What is Mismatch?
Illustration. Source: Investopedia
Mismatch or mismatch, inconsistency in English is Mismatch.
Mismatch is a term for situations where the assets and liabilities on a company’s balance sheet do not match or are inconsistent, often analyzed in situations involving asset-liability management. .
There are many scenarios that can lead to mismatches for assets and liabilities, such as interest rates, cash flows, maturity dates and when converting currencies.
The reason for the mismatch between assets and liabilities is different depending on the subject. It is important for organizations to manage mismatches because if liabilities are much larger than assets, they can suffer huge losses, even leading to bankruptcy.
Feature Not Match
Mismatch is an important factor to consider in various aspects of the financial industry.
Mismatch, related to the matching of assets and liabilities of an entity, has a wide scope and can be used in many aspects of corporate finance, as well as in the areas of banking, insurance insurance and investment.
The basic concept of matching assets and liabilities is to find a way to ensure that some of the available assets are growing in line with certain liabilities of the company.
Appraisers and insurance companies are typical actors based on asset-liability management, along with their expertise in avoiding mismatches between entries on either side of the table. this balance.
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Other companies also need to manage any mismatches that occur, to ensure their assets can meet their liabilities.
In the investment market, various investment theories and methods have been built around matching assets – liabilities, with the goal of achieving financial performance.
Does not match in financial areas
– For insurance companies
Insurers are the most common users of the asset-liability matching process. These companies offer insurance products that claim to pay as premiums for claims in the event of an accident.
In this way, insurance companies need to manage their assets to match their liabilities; Avoid the situation where assets and liabilities do not match.
Liabilities are amounts for claims under insurance policies.
– For companies
Asset companies often seek to leverage profits from investment assets to either reinvest more in the business or possibly pay off certain liabilities.
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As a result, companies may choose to match certain assets with certain liabilities so that the return on available investment assets is suitable for interest and principal payments on the liabilities. .
This type of asset matching is an integral part of balance sheet management.
– In the portfolio
In investing, the asset-liability matching is often referred to as a Liability-based investment (or debt-intensive investment). This type of strategy is used in retirement funds and other investment products.
Retirement funds typically seek to invest in low-risk investments to ensure assets are maintained and available for distribution upon request.