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Aeenda

Treasury management; concepts and Iunctions; instruments in the


treasury market; development oI new Iinancial products; control
and supervision oI Treasury management; linkage oI domestic
operations with Ioreign operations.
sset-liability management; Interest rate risk; interest rate Iutures;
stock options; debt instruments; bond portIolio strategy; risk
control and hedging instruments.
Investments - Treasury bills Money markets instruments such
as CDs, CPs, IBPs; Securitisation and ForIaiting; ReIinance and
rediscounting Iacilities.
hat is Treasury Management
O A place where stores oI treasures are kept; the
place oI deposit, care, and disbursement oI
collected Iunds
O Collects Iunds and disburses money.
O Managing Funds through proper allocation
O Responsibilities Iall under the scope oI CFO
O The CFO`s responsibilities include capital
management, risk management, strategic planning,
investor relations and Iinancial reporting.
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Key areas of Public Cash
Management
Organization
Collection and disbursement of funds
Netting of interagency payments
nvestment of excess funds
Optimal level of cash balances
Cash planning and budgeting
Bank relations
Integrated Treasury Department
Make investment in their own
account
SLR, CRR, CP, CD, TB, Bonds &
Debentures, Equities and various
other derivaties
Domestic
Treasury
Operations
Conduct operation on behalI oI
clients
Spot and Iorward markets, Ioreign
exchange swap markets , FCNR
and Nostro Account.
Forex Treasury
Operations
Integrated Treasury
O l:tc-:atcc I:casu:v :cic:s to i:tc-:atio: oi uo:cv ua:|ct.
sccu:itics ua:|ct a:c io:ci-: cxc|a:-c oc:atio:s.
O Obiectives
a. Meeting reserve requirements
b. Provision Ior adequate and timely liquidity
c. Global cash management
d. Optimizing proIit by exploiting market opportunities in
Iorex market, money market and securities market
e. Risk management
i. liiicic:t uc:c|a:t sc:viccs
-. Assisti:- |a:| ua:a-cuc:t i: Al\
$truoture of 1reasurv Uepartment
:3.943 #085438-0 147
Iionl offico DoaIing
Mid-Offico Risk nanagononl, accounling
and nanagononl infoinalion
ack offico Confiinalions, sollIononl and
ioconciIialion
#ONT OCE
BACK OCE MD OCE
Dealing
MS
settlement
Bank treasury departments
O Money market desk
O Foreign exchange or FX desk
O Equities Desk
O Derivatives Desk
Treasury Strategies, Inc. TreasuryStrategiescom
Debt &
Investment
Management
Performance
Measurement
Treasury
Operations
Risk
Management
Treasury
Management
Credit
Exposure
Management
VaIue
at
Risk
SimuIation
Cash
Position
Transaction
Management
BRM
System
Interfaces
Best
Practices
Benchmarks
Other
Metrics
Long
Range
GoaIs
Liquidity
Long Term
Invest
Debt
Issuance
System
Interfaces
Global /
Domestic
Derivatives/
Currencies
G/L/E#P
nterfaces
Simple/
Esoteric
orkstaton unotonaltv
1reasurv
Functions oI Treasury Management
O Reserve Management & Investment
O Cash Management
O Liquidity & Funds Management
O Risk Management
O Asset liability management
O TransIer Pricing
O Derivative products
O Arbitrage
O Insurance Management
#eserve Management & Investment
O Meeting CRR/SLR obligations
a) CRR 6
b) SLR 25
O Appropriate mix oI investment portIolio
ash Management
O Control & care oI the cash assets and liabilities oI the
organization.
O Selection oI investment products, investment brokers,
methods oI borrowing, cash management inIormation
system and the development and compliance with cash
and investment policy and processes.
1 3393333333 1
OrJer Onon::y rZ)
cost (sj
Z
*
1o:ol cos:s
HolJnq cos:s.
rZ/2)*r
OrJer cos:s.rm//Z)*1c
Gptimai cash Baiance via Baumoi Modei
Z
*
b |:!\I:
M = $10,000 M = $10,000 r = .01% .0001 r = .01% .0001
TC = $20 TC = $20
Z = $63,246 Z = $63,246
nvestment of excess funds
iquidity & Funds Management
O Analysis oI cash Ilow arising out oI asset liability transaction
O Fund various asset oI balance sheet
O Policy inputs to strategic planning and yield expected in credit
and investment.
#isk Management
O Changes in Interest rates
O Increasing NPA`s
O Increasing level oI disintermediation
O It includes customer credit management, vendor/contractor
Iinancial analysis, liability claims management, business
disaster recovery, and employee beneIits program risk.
Transfer Pricing
O TransIer oI Iunds to related party.
O Assist in enhancing proIits
O PerIormance evaluation
erivative Products
O Develop Interest Rate Swap and other cross currency
derivative products
O Hedge bank`s own exposure and also sell to customers
rbitrage
O Risk less proIits
Insurance Management
O Insurance Management is the process oI negotiation oI
insurance policies to mitigate the risks that the
organization does not want to assume.
ccounts #eceivable Management
O Accounts Receivable Management includes the control
oI cash receipt systems within the organization.
ccounts Payable Management
O Accounts Payable Management includes the control oI
the cash disbursement process.
Assct lia|ilitv
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asscts oi |a:|s
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l: Ic:us oi . \atu:itics i:tc:cst :atc sc:sitivitics
Io \i:iuizc. l:tc:cst :atc :is| liquicitv kis|
ALM
O Al\ is a: i:tc-:al a:t oi t|c ii:a:cial ua:a-cuc:t :occss
oi a |a:|.
O Al\ is co:cc::cc wit| st:atc-ic |ala:cc s|cct ua:a-cuc:t
i:volvi:- :is|s causcc |v c|a:-cs i: i:tc:cst :atc. cxc|a:-c
:atcs a:c liquicitv ositio: oi t|c |a:|.
O Al\ ca: |c tc:ucc as :is| ua:a-cuc:t tcc|:iquc ccsi-:cc
to ca:: a: accquatc :ctu:: w|ilc uai:tai:i:- a couio:ta|lc
su:lus oi asscts |cvo:c lia|ilitics.
1reasurers 10 pont oheok lst
O 1. cash is King w|c: iiquidity is scarce. so iocus o: t|c iu:cauc:tals oi vorking
capitai a:c cash iov optimisation. -ct aic. |:ow vou'vc |cc: aic. otiuisc avuc:ts. ua|c
su:lus cas| wo:| |a:cc:
O !. locus o: operationai eiciencies w|c:cvc: ossi|lc. suc| as t|c centraiisation o
processes and inormation. i: accitio: to t:casu:v. payments a:c collcctio:s
O !. |cc| :c-ula:lv io: accitio:al security, eiciency and portabiiity oo:tu:itics
t|:ou-| sWII1
O +. losclv uo:ito: a:c ua:a-c IX eposures
O .. \o:ito: counterparty risk |v c|cc|i:- cas| ositio:s. c:ccit cciault swas a:c csta|lis|i:-
cou:tc:a:tv liuits
O o. l:su:c t|c inanciai suppiy chain cocs :ot |ccouc too vul:c:a|lc |v -ctti:- t|c
iu:cauc:tals :i-|t. suc| as avoici:- latc avuc:t to sulic:s
O . lc-i: :ca:atio:s :ow to cxloit t|c |c:ciits oi sIPA Direct Debits a:c t|c lavuc:ts
c:vicc Di:cctivc :lD
O . lcc u to catc wit| IIRs changes. suc| as i: Hedge Accounting. a:c lo||v t|c aut|o:itics
w|c:c :ooscc c|a:-cs woulc |c cct:iuc:tal to t|c |usi:css
O 9. o:sicc: oo:tu:itics io: iu:ovi:- cas| a:c t:casu:v ua:a-cuc:t i: countries o rapid
grovth. suc| as i: Asia a:c t|c Guli :c-io:. |ut :ctai: a svstcuatic a:oac| to :is| a:c c:su:c t|c
visi|ilitv oi cas| ilow
O 10. locus o: t|c coua:v's baiance sheet a:c P&I w|c: ua|i:- cccisio:s. as wcll as w|c:
asscssi:- t:casu:v :csults
Treasury Strategies, Inc. TreasuryStrategiescom
1eohnoloev
O u::c:t tatc oi I:casu:v a:c Icc|:olo-v.
O \ost t:casu:c:s usc t:casu:v tcc|:olo-v to suo:t t|ci:
t:casu:v iu:ctio:s
O la:|:oviccc soitwa:c
O I|i:c a:tv:oviccc soitwa:c
O I:casu:v tcc|:olo-v |as iu:ovcc liquicitv a:c :is|
ua:a-cuc:t
O lcttc: a:c uo:c tiuclv acccss to i:io:uatio:
O lu:ovcc co:t:ols ovc: t:a:sactio: :occssi:-
Treasury Strategies, Inc. TreasuryStrategiescom
ash oreoastne
O lc:ciits oi wc|c:a|lcc tcc|:olo-v alicc to cas|
io:ccasti:-.
O lasic: acccss to a :co:ti:- ucc|a:isu i:ou a:v co:o:atc
locatio:
O Autouatcc i:io:uatio: catu:c i:ou ot|c: cata sou:ccs
O Alicatio: oi autouatio: to csta|lis| |isto:ical c:scctivc a:c
icc:tiiv u:usual cas| ilows
O Glo|al iulcuc:tatio:
O ta:ca:cizcc a:oac| to :ctti:- oc:atio:
O \o:c liuitcc a:c ua:a-ca|lc t:ai:i:- :cqui:cuc:ts
Treasury Strategies, Inc. TreasuryStrategiescom
A$! $olutons
Subscribers
Subscribers
Subscribers
Custody
Bank 3
Bank 2
Bank 1
Broker/DeaIer
ASP
Service
Information
Exchange
Internet
Treasury Strategies, Inc. TreasuryStrategiescom
ommeroe
O Diiic:c:t t:casu:v c|allc:-cs a:c oo:tu:itics. ccc:ci:-
o: t|c i:cust:v a:c ua:|ct sc-uc:t
O Altc::ativc acccss a:c cclivc:v c|a::cl io: couuc:cial |a:|s
O lusi:csstoco:suuc: :l! t:a:sactio:s o: t|c iast t:ac|:
O ollc-cs a:c u:ivc:sitics a:c i:volvcc i: succcssiul ccouuc:cc
:o-:aus
O Govc::uc:t is iaci:- c|allc:-cs ccali:- wit| salcs tax :cvc:uc
collcctio:s
O l:o|c:a-c i:cust:v. o:li:c t:aci:- |ot. |ut t:accs a:c scttlcc
wit| co:vc:tio:al avuc:t
O li:st uajo: wavc oi t:casu:v i:io:uatio: a:c soitwa:c :ocucts
|ccoui:- Wc|c:a|lcc
Treasury Strategies, Inc. TreasuryStrategiescom
ommeroe
O o:o:atc I:casu:v o:tu:itics
O :cw i:vcstuc:t|o::owi:- sou:ccs
O t|c:. i:tc::ctowc:cc ii:a:cial :ocucts
O D:auaticallv c:|a:ccc i:io:uatio: ilows
O ost a:c ciiicic:cv iu:ovcuc:ts
O I:casu:v :olc i: t|c ccvclouc:t oi -lo|al
ccouuc:cc vc:tu:cs
O o:o:atc I:casu:v |allc:-cs
O I:casu:v ua:a-cuc:t issucs
O lavuc:t svstcu issucs
O l:io:uatio: ua:a-cuc:t issucs
O kis| ua:a-cuc:t issucs
Treasury Strategies, Inc. TreasuryStrategiescom
ommeroe
O I:casu:v \a:a-cuc:t lssucs
O |a:-c a:c ccvclouc:t i: wo:|i:- caital a:c c:ccit
couo:c:ts
O lositio:i:- t:casu:v st:atc-icallv i: a -lo|al
ccouuc:cc c:vi:o:uc:t
O :cw t:casu:v s|ills :cqui:cc
O kc-io:al t:casu:v ua:a-cuc:t :cqui:cuc:ts
O :oss|o:cc: vs. i:t:acou:t:v
O :-a:izatio:al liuitatio:s
1reasurv Manaeement $ervoes
O Improve vou: :ccciva|lc collcctio: :occsscs
O Increase co:t:ol a:c ua:a-cuc:t oi vou: cis|u:scuc:ts
O Inhance vou: lcvcl oi tiuclv a:c cou:c|c:sivc i:io:uatio: co:t:ols
O Maimize vou: liquicitv ua:a-cuc:t
O Reduce t|c otc:tial io: i:auc a:c ossi|lc uo:cta:v losscs to vou: coua:v
O Provide t|c uost acva:ccc i:io:uatio: tcc|:olo-v tools availa|lc
#eoevables Manaeement
O as| o:cc:t:atio:
O Di:cct Dc|it
AcH Debit
Whoiesaie Iockbo
#eoevables Manaeement
u::c:t cav cctail :co:ti:-
lua-cc :cuitta:cc cocuuc:ts
l:voicc catu:c cctail
u::c:t cav cctail :co:ti:-
lua-cc :cuitta:cc cocuuc:ts
l:voicc catu:c cctail
Retaii Iockbo
#eoevables Manaeement
auc cav cata t:a:suissio:s
lua-i:- availa|lc oi c|cc|.
couo: o: |ot|
ca:c|a|lc Dk\ a:c|ivc oi
:occsscc cctail
auc cav cata t:a:suissio:s
lua-i:- availa|lc oi c|cc|.
couo: o: |ot|
ca:c|a|lc Dk\ a:c|ivc oi
:occsscc cctail
Usbursement Manaeement
O o:t:ollcc Dis|u:scuc:t
O lo:tc:
O lcu|ill
O lo:cv G:ovc
O Accou:t kcco:ciliatio:
O lull Akl
O la:tial Akl
O Dcosit :cco:ciliatio:
O Di:cct t:a:suissio: oi aic itcu iilcs
O tatcuc:t a:c c|cc| iua-i:- o: Dk\
Usbursement Manaeement
AcH
lasv to coulctc t:a:sactio:
io:us
Wicc va:ictv oi avuc:t tvcs
i:cluci:- lDl !0
Allows iuo:t oi t:a:sactio:
cctail i:ou ot|c: alicatio:s
lasv to coulctc t:a:sactio:
io:us
Wicc va:ictv oi avuc:t tvcs
i:cluci:- lDl !0
Allows iuo:t oi t:a:sactio:
cctail i:ou ot|c: alicatio:s
Positive Pay Advantage
Usbursement Manaeement
O A kclatio:s|i avc:
O 90 Dav listo:v oi laic |cc| lua-cs
O c\ail :otiiicatio: w|c: ltcus a:c kcacv io: kcvicw
O Dv:auic kco:ts
O lxo:t Data to a couua ccliuitcc iilc :V io: iu:t|c:
ustouizatio:
O \a:a-c vou: lusi:css wit| ou: Acui:ist:atio: \oculc
$A! 1reasurv and #sk Manaeement
(1#M)
!
iobai Best Practices in Risk and 1reasury Management
A comprehensive ramevork - 9 part ramevork
!9
Global Best Practices in Risk and Treasury Management
Risk Approach
!00. llDll l:c. All :i-|ts
:csc:vcc.
+0
iobai Best Practices in Risk and 1reasury Management
Integrated, not Iragmented Approach
(Asset, Iiabiiity, G-Baiance sheet Itemsj
+1
Global Best Practices in Risk and Treasury Management
O Best Practices Institutions view Risk Management not
from the perspective of compliance or control but from
the perspective of value creation
O Best practice institutions take a proactive, not a reactive
approach to Risk Management as part of Balance Sheet
Management.
O Best practice institutions have a clear articulation of the
amount of risk to be taken. They are quantified, pre-
specified, and measurable
O Best practice institutions have a balance sheet management
process that encompasses on-balance sheet, off-balance sheet,
and behind the balance sheet (quality of Risk Management
infrastructure) items.
+!
Global Best Practices in Risk and Treasury Management
Best practice institutions manage risk, not eliminate them.
The watchwords are:
O Risk by choice, not by chance
O Exposure by choice, not by chance
O Clean bet, not confused bet
O Bet with your head, not over your head
O Best practice institutions control both the volatility of
Interest Income (NII), a short-term objective, and Econ
Value of Portfolio Equity (EVPE), a long-term objective.
O A change in the EVPE is a leading indicator of the quality of
future income statement.
!00. llDll l:c. All :i-|ts
:csc:vcc.
+!
Global Best Practices in Risk and Treasury Management
Strategic Process
Best practice institutions have Risk Management
function acting as a catalyst for the formulation of
strategies. They ensure that there is a fit between
different strategies. They include:
W n-Balance Sheet Business Strategies
W n-Balance Sheet Investment/Funding Strategies
W ff-Balance Sheet Strategies
++
Global Best Practices in Risk and Treasury Management
Derivatives
O Best practice institutions view derivatives as a double-edged sword
- they are not an end but a potential means to accomplishing a
strategic objective.
O Best Practices institutions primary emphasis is on Strategies
for Exposure Reduction and not on techniques for Noise
Reduction.
O Best practice institutions follow simple, easy-to-understand
derivatives strategies for their Risk Management; in
particular, they avoid exotic products/leveraged structures.
O The watchword is " Keep It Simple, Smart ".
!00. llDll l:c. All :i-|ts
:csc:vcc.
+.
Global Best Practices in Risk and Treasury Management
Analytical Framework
O Best practice institutions use an eclectic mix of
analytical techniques such as gap analysis, simulation,
duration, and value at risk depending on the structure
of the balance sheet and target variable being
measured.
O No single technique is regarded as better than the
others by best practice institutions. They view these
techniques as complementary diagnostic tools.
!00. llDll l:c. All :i-|ts
:csc:vcc.
+o
Global Best Practices in Risk and Treasury Management
Information Reporting Framework
Best practice institutions share Risk Management
information among employees at right frequency and at
the right level of detail. They ensure that the amount/type
of information received is appropriate/necessary for the
recipients' task.
An appropriate balance between information overload and
the dearth of information is maintained.
!00. llDll l:c. All :i-|ts
:csc:vcc.
+
Global Best Practices in Risk and Treasury Management
Control Framework
Best Practice institutions ensure that the Risk
Management limits are articulated to place a "ring
fence" around operating managers rather than tying
their hands with rigid limits. They strive for a judicious
balance between "tight controls" and "loose controls".
A successIul treasury Iunction has the same
attributes as any other Iunction within the
organization that is considered successIul. These
qualities are:
W Teamwork
W Respect oI Organization
W Forward Thinking
W Global Thinking
W Technologically Advanced
W Customer Focused
W Finance/Accounting Knowledge
W Legal Knowledge
W Reliability
Treasury Strategies, Inc. TreasuryStrategiescom
1he uture of the 1reasurv unoton
O I:casu:v o:-a:izatio:s will co:ti:uc to s|:i:|
O l:c:cascc usc oi :ulc |ascc cccisio: ua|i:-
O l:c:cascc usc oi outsou:ci:-
O Doucstic t:casu:v iu:ctio:s a:c |ci:- ciiiuscc t|:ou-|
co:o:atc o:-a:izatio:s
O |iit to l i:vitcs :cw couctito:s to t|c ta|lc
O \o:c oi:ts oi co:tact io: t:acitio:al |usi:css ccvclouc:t
O Glo|al t:casu:v iu:ctio:s. o: t|c ot|c: |a:c. a:c |ci:-
cc:t:alizcc
O uall |usi:css t:casu:c:s uo:c so|isticatcc a|out t:casu:v
ua:a-cuc:t :ocucts a:c sc:viccs
Treasury Strategies, Inc. TreasuryStrategiescom
1he uture of the 1reasurv unoton
$uooess aotors orporate 1reasurv
O I:casu:v uust co:ti:uc to suo:t co:o:atc st:atc-v
O luact o: co:o:atc :oiita|ilitv
O Discili:cc iocus o: co:c couctc:cics
O Acccss to i:io:uatio: vc:sus cata
O o::cct culovcc s|ill sct uix
O Dcvcloi:- a: ccouuc:cc a:oac| t|at iits
O iulc: a:c casic: cxccutio: oi t:casu:v ua:a-cuc:t
O locus o: ii:a:cial st:atc-ics a:c olicics
Treasury Strategies, Inc. TreasuryStrategiescom
1he uture of the 1reasurv unoton
$uooess aotors nanoal $ervoe
!rovders
O la:|s uust usc k\ a:c cata ui:i:- to |:ow a:c sc:vc
clic:ts i: i:c:casi:-lv custouizcc wavs
O la:|s uust ii:c a :cw |ala:cc |ctwcc: clic:t acquisitio: a:c
clic:t :ctc:tio: ciio:ts
O I:casu:v ua:a-cuc:t |a:|s uust |c c:cativc i: :ovici:-
valuc |cvo:c u:c avuc:t :occssi:-
O I:casu:v ua:a-cuc:t |a:|s uust ccvclo a -lo|al
c:scctivc o: sc:viccs a:c cclivc:v
O I:casu:v ua:a-cuc:t |a:|s uust lca:: to oc:atc i:
i:tc::ct tiuc
Treasury Strategies, Inc. TreasuryStrategiescom
1reasurv 0utsourone
Review and
Test Disaster
Recovery
Plan
Assist as Bus
Go up on New
Services Advisor,
source of info
& feedback on
New Banks &
Services
Train Backup for
Vacations, etc.
Develop and
Maintain Complete
Procedural
Documentation
Bank
Account Admin;
Signatory
Tracking
Monitor
Balances &
Service Charges;
Troubleshoot
Get
Involved in BU
Service Problems
According to
Decision Rules
Advisor
in Updating
Banks & Account
Structure Due to
Acquisition, etc.
Assess Bank
Service, Periodic
Quality
Feedback to
Customer/
Bank
Historical
Reporting and
Trend Analysis
Prepare
Periodic Cash
Management
Reports
Outsourcer
Periodic Activities