What are the advantages of matching the maturities of assets and liabilities? What are the

QUESTION

What are the advantages of matching the maturities of assets and liabilities? What are the disadvantages?
The matching approach for meeting the financing needs of the
company states that fluctuating assets should be financed by the short term
sources of financing while the long term i.e. fixed assets of the business
should be financed by the long term sources of financing. The firm can maintain
an optimum balance between the liquidity and profitability by matching the
maturity of the assets with the maturity of the liabilities. However

there is
some difficulty in implementing this approach. It is not always possible to
finance the short term assets with short term financing or long term assets
with long term financing. The bank may not be willing to lend to the company or
the debtors may not pay the receivables on time.

ANSWER:

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