By Gloria Gasasira Manzi
2011
The major challenge faced by central banks in reserves management is to choose an efficient portfolio that maximizes expected return for a given level of risk. Using a mean-variance approach, the paper will examine how assets can be allocated to achieve the most efficient portfolio, keeping in mind the objectives of safety, liquidity and obtaining a reasonable return in reserves management. It is expected that the outcome will be an alternative optimal asset allocation framework consistent with the central banks’ objectives that can minimize risk while maximizing return.