Explain how cash flow matching is used to fund a set of liabilities

Cash flow matching buys bonds whose coupon and principal payments line up in timing and amount with a schedule of liabilities. The usual construction starts with the last liability: buy enough of a bond maturing then to cover it, subtract that bond's coupons from earlier liabilities, and repeat backwards. Because each liability is met by a specific cash flow, the portfolio does not depend on interest rate moves and needs little rebalancing. Drawbacks are cost, since the exact bonds may be scarce or expensive; cash that arrives before it is needed must be reinvested at unknown rates; and call, prepayment or default risk can break the match. It is tempting to assume zero risk; credit and reinvestment risk remain.