Identifier: C2T7L4 | Revision: 2026-10-26

Decision and objectives

Build a debt allocation from the spending schedule outward. Start with amount, currency, deadline and acceptable loss; then choose claims whose dependable cash can meet them. A high portfolio yield does not fund an early liability if cash arrives too late. Compare a payment-matched baseline with a longer-duration alternative under rate, credit, currency and liquidity shocks.

Objectives: Match dated liabilities to net receipts; Compare two allocations under joint shocks; Define a justified allocation or rejection.

Prerequisites: C2T7L3.

Mechanics

A liability ledger lists each required payment and the date cash must be usable. An asset ledger lists contractual receipts after known costs and supplied tax. Keep an emergency reserve separate from money committed to securities. A maturity match still depends on issuer performance and operations; a sale-based plan also depends on market price and liquidity. A fund's redemption timetable must be mapped from order through pricing to cash credit.

Price and return drivers

Calculate initial cost, usable receipts, deadline shortfall and stress values on the same currency basis. For fixed cash flows a rate shock mainly changes early-sale value; a credit shock can change the receipts themselves. A USD asset adds an FX conversion scenario for a TRY liability. Sum only mutually compatible cash amounts and avoid adding a principal maturity payment to an assumed earlier sale of the same security.

Worked case

Hypothetical household has TRY 500,000 and needs TRY 220,000 after six months plus TRY 300,000 after twelve months. No external funding; use supplied zero-tax schedule and all-in prices. Baseline A: six-month bill redeems 220,000, costs 210,000 including costs; twelve-month bill redeems 300,000, costs 275,000 including costs. Total cost TRY 485,000; retained cash TRY 15,000. If paid in full on time, both liabilities are matched and the cash reserve remains.

Alternative B: retain TRY 15,000, invest 485,000 in a two-year bond; planned six-month coupon TRY 20,000; sell part for assumed net proceeds TRY 200,000 to meet the six-month 220,000 need. This is not contractual cash matching. Supplied stress: same coupon but available net sale proceeds only 180,000. Cash available including the entire reserve = 20,000+180,000+15,000 = TRY 215,000; shortfall TRY 5,000. No promised two-year redemption can retroactively pay that six-month gap.

Adverse case

Stress A for a separate credit event: six-month bill pays only 90% of its 220,000 redemption. Receipt TRY 198,000 plus reserve 15,000 = TRY 213,000, leaving TRY 7,000 short. A matches dates but does not eliminate credit risk. For a currency alternative, suppose a USD issue's required six-month TRY conversion is modelled at 33 but stress FX is 30; USD 6,000 yields 180,000 instead of 198,000, a TRY 18,000 reduction before other effects. Rate, spread and FX losses can occur together, so avoid testing only one favorable branch.

Practical use

Confirm denominations, executable all-in prices, settlement funding, custody crediting and investor eligibility. Tax treatment is supplied as zero solely for the scenario; a real plan must verify investor residence/status, income year, issue/acquisition dates and effective rules. Set the latest safe sale or redemption instruction date with a calendar buffer. Record action triggers: lower expected receipt, missing coupon, worse bid, changed tax, or an earlier liability date requires replanning.

Decision boundaries

Choose A under the supplied base facts because it minimizes reliance on a future sale and retains a small buffer, while disclosing the stressed issuer shortfall. If the investor requires a guarantee of both payments under the 90% recovery state, neither allocation meets the objective without more cash or another acceptable support. Decline B as the sole funding plan when its ordinary stress leaves a deficit. A valid decision can retain cash, reduce risk or defer a trade; it must state the decisive numbers.

Practice and references

Exercise: hypothetical budget TRY 400,000; all-in cost 175,000 for a bill paying 190,000 at six months, and 210,000 for a bill paying 230,000 at twelve months. Liabilities match those receipts. Answer: total cost 385,000; reserve 15,000. If the six-month payment is 8% short, it pays 174,800; reserve brings available cash to 189,800, leaving 200 short. The date match is insufficient for that credit stress.

Takeaway: select an implementable dated cash plan and quantify the scenario in which it stops working.

Reference guide: debt-portfolio, cash-flow-matching, duration-price-change, Liquidity reserve, Cash flow matching.

Next: C3T1L1. Topic test: C2T7.

Primary sources (checked 2026-10-26; changing terms require a publication recheck): Debt Securities Market data reporting and acceptance formats — Fields 29–36; GIB investment income tax guide, February 2026 — Eurobond income; temporary Article 67; resident and nonresident examples.

Shared reference guide | Class examination