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Treasury Management

Treasury management is the management of all financial affairs of the business such as raising fonts for the business from various sources, currency management, cash flows and various strategies and procedure of corporate finance with mitigation of operational and financial risk.

The key goal of treasury management is planning, organising and controlling cash assets to satisfy the financial objectives of the organisation.

Functions of Treasury Management

Functions of Treasury Management: Cash management Liquidity management Availability of funds in adequate quantity at right time Deployment of funds inadequate quantity at right time Optimum utilization resources Risk management.

Integrated Treasury &It’s Function:

A comprehensive strategy for funding for funding the balance sheet and allocating capital accross domestic, international and Foreign exchange market is known as Integrated Treasury. Treasury Operations- a. CRR (Maintaining Reserves) b. SLR

Integrated Treasury Management Functions:

Reserve management and investment Liquidity and Fund Management Assest Liability Management (ALM) Risk Management Transfer Pricing Derivative products -Interest rate swap (IRS) and other currency based/cross currency derivative. Arbitrage- Maximum profit with the rest amount of risk Capital Adequacy- Return on Assets (RoA) Nature of Integration

Nature of Integration:

At first there is integration of geography and infrastructure. The domestic treasury unit and the forex trading rooms are combined and housed in the same location.

Intregated Role:

– ALM

-SWAP Management

-Overseas borrowing investment

-Arbitrage

-Derivate dealing

 Benefits of Integration 

  1. Increase portfolio, risk mitigation and asset synergy between banking and trading.
  2. Accomplished through effective money management, cost effective liability sourcing, appropriate transfer pricing, online and offline information sharing between money and forex dealers.
  3. Serves as a half for hedging and arbitrage activities.
  4. Opportunity to develop multi currency balance sheets.
  5. Effective MIS, improve internal control, risk minimization and better regulatory compliance.

 Money market instrument 

A money market is a suitable location for people, banks, businesses and governments to temporarily store their cash

Simply said, short term debt instruments are traded on the money market.

  1. Certificate of deposit
  2. Commercial paper-promissory note
  3. Treasury bills
  4. Repurchase agreement-Repo
  5. Banker’s acceptance.

Quasi Money

It is another liability of banks. It includes all deposit and usually have a lower rate of turnover. This generally means time and saving deposits with the banking system and foreign exchange deposits held by residents. Government deposits are not included in either money or quasi money because they do not contain expenditure decisions of the government.

Asset-liability Management (ALM)

Pros:

Mitigate interest rate risk.

Ensure adequate liquidity.

Enhance risk management.

Maximize return on investments.

Cons: 

Complex decision making process.

Increase transaction cost.

Potential for over hedging or under hedging.

Limited flexibility in investment strategies.

 Money Market Vs Forex Market/Currency Market

Money Market Forex Market
Trading platform for foreign exchange trading. Short term capital lending market with dealing of 01 year or less.
Primary purpose to finance both short term funding surplus and deficit. To facilitate the exchange various currencies and reduce the risk of currency volatility.
Deals only one type of currency Dealing two different curriencies
Short term credit market, short term securities market and discount market are the three segment of money market. A sport trading, a forward trading market and a adjustment trading market are the elements of forex market.
A bank’s short term capital deposit and lending operation makes money from the interest spread between loan and deposit. Bank’s earning from buying and selling of foreign currency.

 Government Financial Accounts

Government finance account records government’s revenues and expenditures. One can ascertain the flow of payment between a government and rest of the economy during a given period of time out of this account.

Government transaction are summarized into 05 groups:

  1. Revenue
  2. Grants non repayable, non compulsory
  3. Expenditure
  4. Net lending
  5. Financing

Balance of Payments Account:

It records the international economic transactions of a country with rest of the world during a particular period of time.

Balance of payments accounts items classification:

The items or components of BOP accounts are grouped into 02 broad categories:

  1. Current: This account transactions are divided into those involving goods, services, incomes and unrequited transfers. These include imports and exports, travel, shipment, transportation, investment income.
  2. Capital Account: It covers transaction in financial assets and liabilities. In addition it incorporates supplementary information on total changes in reserve holdings, type of capital investment, length of maturity and assets liabilities.