IIBF New Certified Treasury Professionals PDF


Since 1990s, the prime movers of financial intermediaries and services have been the policies of globalization and reforms. All players and regulators had been actively participating, only with variation of the degree of participation, to globalize the economy. With burgeoning forex reserves, Indian banks and Financial Institutions have no alternative but to be directly affected by global happenings and trades. This is where; integrated treasury operations have emerged as a basic tool for key financial performance.
A treasury department of a bank is concerned with the following functions:
(a) Reserve Management & Investment: It involves (i) meeting CRR/SLR obligations, (ii) having an appropriate mix of investment portfolio to optimise yield and duration. Duration is the weighted average ‘life’ of a debt instrument over which investment in that instrument is recouped. Duration Analysis is used as a tool to monitor the price sensitivity
of an investment instrument to interest rate charges.
(b) Liquidity & Funds Management: It involves (i) analysis of major cash flows arising out of asset-liability transactions (ii) providing a balanced and well-diversified liability base to fund the various assets in the balance sheet of the bank (iii) providing policy inputs to strategic planning group of the bank on funding mix (currency, tenor & cost) and yield expected in credit and investment.
(c) Asset Liability Management & Term Money:
ALM calls for determining the optimal size and growth rate of the balance sheet and also prices the Assets and liabilities in accordance with prescribed guidelines. Successive reduction in CRR rates and ALM practices by banks increase the demand for funds for tenor of above 15 days (Term Money) to match duration of their assets.
(d) Risk Management: integrated treasury manages
all market risks associated with a bank’s liabilities and assets. The market risk of liabilities pertains to floating interest rate risk for assets & liability mismatches. The market risk for assets can arise from (i) unfavorable change in interest rates (ii) increasing levels of disintermediation (iii) securitization of assets (iv) emergence of credit derivates etc. while the credit risk assessment continues to rest with Credit Department, the Treasury would
monitor the cash inflow impact from changes in assets prices due to interest rate changes by adhering to prudential exposure limits.
(e) Transfer Pricing: Treasury is to ensure that
the funds of the bank are deployed optimally, without sacrificing yield or liquidity. An integrated Treasury unit has as idea of the bank’s overall funding needs as well as direct access to various market ( like money market, capital market, forex market, credit market). Hence, ideally treasury should provide benchmark rates, after assuming market risk, to various business groups and product categories about the correct business strategy to adopt.
(f)  Derivative Products: Treasury can develop Interest
Rate Swap (IRS) and other Rupee based/ cross- currency derivative products for hedging Bank’s own exposures and also sell such products to customers/other banks.
(g) Arbitrage : Treasury units of banks
undertake this by simultaneous buying and selling of the same type of assets in two different markets to make risk-less profits.
(h) Capital Adequacy:
This function focuses on quality of assets, with Return on Assets (ROA) being a key criterion for measuring the efficiency of deployed funds. An integrated treasury is a major profit centre. It has its own P&L measurement. It undertakes exposures through proprietary trading (deals done to make profits out of movements in market interest/ exchange rates) that may not be required for general banking.
(i)   Coordination:
Banks do operate at more than one money market centers. All the centers undertake similar transactions with differing volumes. There is a need to coordinate the activities of these centers so that aberrations are avoided (situations where one center is lending and the other one is borrowing at the same time). The task of coordination of foreign exchanges positions is no different.
(j)   Control and Development:
Treasury operates as the focal point of dealing operations. Dealing operations could include
cash/spot, forward, futures, options, interest and currency liability swaps, forward rate agreements and the like. Treasury is the sole owner and performer of these transactions.
(k) Fraud Protection:
The decade of nineties has witnessed more frauds in trading than banking books. The amount and variety of such embezzlements have been directly relatable to the operational level. The ground level task of this kind is to be undertaken at the treasury. All the aforesaid activities are funds management functions in a banking environment.



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