TREASURY PRODUCTS: When we talk about the Treasury Products, it refers to all the cross-currency swaps and risk management products that are entered into, or are to be entered into between the Borrower and the Lender according to the Master Agreement. These agreements are subject to the prior written consent of the lender and “Treasury Product” could be any one of them. Some of the products which are dealt with are mentioned below:

  • Interest Rates, Derivatives & Foreign Exchange
  • Asset & Portfolio Management
  • Money Market
  • Marketable Securities & Fixed Income Proprietary Investments
  • Bullion
  • FXConnect
  • Constituent SGL Facilities
  • Retailing of Government Securities

The foreign exchange market is a ready market where free currencies are bought and sold. 

Free currencies are the currencies that pertain to highly developed countries as well as the countries which practically control the currency exchanges. 

The foreign exchange market is considered to be the most transparent market. And one should know that it is a virtual market. 

It is also sometimes called a near-perfect market because it has an efficient price discovery system. 

Settlement time: It takes two working days for the settlement of spot trades from the transaction date i.e 3rd day. 

Hedging: Traders who deal in foreign currencies cover their risk by entering into forwarding contracts in this market. 

Profit: Treasuries enter into forwarding contracts with the intention to make profits out of these price movements.

The rates which are determined for forwarding exchange contracts are based on the interest rate differences between the two currencies. 

Swap: When spot transaction and forward transaction are combined; it is known as a swap. 

Use of swap: These are most popularly used to convert one currency’s cash flow to another currency’s cash flow. 

Opportunity for Investments: Any forex surplus can be invested in interbank loans, short-term investments, and Nostro Accounts. 

Nostro Accounts: These are the current accounts that are maintained in foreign currency with the correspondent banks in the home currency of their country by the banks. 

No interest on Nostro accounts: No interest is provided on the balance or amount held in the Nostro accounts. 

Interbank advance: One way of interbank advances is the re-discounting of foreign bills.

Inclusion in the credit portfolio: Reserve Bank of India has allowed the Indian banks to now can include the rediscounting of bills in their portfolio as per RBI.

Money market: To raise & develop short-term sources is known as a money market. 

Interbank market: This market has been sub categorized into: 

  • Call money: It is the overnight placement 
  • Notice money: When placement is done for more than one night but doesn’t exceed 14 days, it is referred to as notice money.
  • Term money: When placement is done in the morning for 14 days but doesn’t exceed one year.

Interbank market and market which carries the lowest risk after sovereign risk.

Interest on CRR balance: Reserve Bank of India pays interest on the CRR balance which exceeds 3% at the rate of Reverse Repo. 

Implicit yield: When bills are priced lower than the face value, it is referred to as implicit yield. In other words, it is the interest that is charged on treasury bills by way of a discount. 

Issue of treasury bills (T-bills):-

  • When treasury bills are issued for 91 days, they are issued for Rs. 500 crores & there are weekly auctions every Wednesday. 
  • When passive bills are issued for 364 days, the issue for Rs. 1000 crores & they are fortnightly auctions on every alternate Wednesday. 

All the payments of treasury bills are made and received through CCIL (Clearing Corporation of India Limited).

Commercial paper: It is a short-term debt market paper. For a company to issue a commercial paper, it is required that it should have a minimum credit rating of P2. 

Banks are allowed to invest in commercial papers only if the commercial papers have been issued in the Demat form. 

Stamp duty is attracted on every certificate of deposit. 

Repo: When securities are sold with a given that they will be re-purchased at a later date it is referred to as Repo. At present, only government securities come under the repo transactions.

Use of Repo-rate: It is used to lend and borrow the money market funds. The Reserve Bank of India uses repo rate to control liquidity in the interbank market.

Element of liquidity is infused in the markets through repo transactions while lending to the banks. Liquidity is also absorbed by accepting the deposits from the banks at the reverse repo rate. 

Upper and lower limit: Upper rate of interest is set by repo rate & the minimum or floor rate is set by reverse repo rate.

Business of investment: It is made up of buying and selling of products which are available in the securities market. 

SLR can also been satisfied by investing in priority sector bonds of NABARD & SDBI. 

State development bonds are issued by the state government through the Reserve Bank of India. 

Corporate debt papers: These papers include bonds and debentures which are issued by copper plates as well as financial institutions for long and medium terms. 

Debt Instruments: These are basically debentures and bonds which are issued by corporate bodies whether with or without security. 

In India, the private sector issues debentures while institutions in the public sector issue bonds. 

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Governance over Bonds & Debentures: Bonds are basically Negotiable Instruments which come under the purview of contract law while debentures are governed by the company law and can be transferred only through registration. 

Convertible bonds: When holders of bonds are provided an option who can convert their debt into equity or a future date or during a fixed period, they are referred to as convertible bonds.

Some of the recently introduced derivative product are: 

  • Index futures 
  • Index options 
  • Stock futures 
  • Stock options

Derivatives are used popularly to manage the risk as well as to make profit through speculation.

Money market: The products included in the money market are mentioned below: 

Treasury bills 

Commercial papers 

Deposit certificates 

This market is used to invest surplus funds by the banks as well as to raise short-term funds so that the gaps between the cash flows of the bank can be bridged. 

EEFC (Exchange Earners’ Foreign Currency Account): Under this account, exporters are allowed to hold a part of their export proceeds in the current account maintained with the bank. 

GILTS: Geyser risk free security which has been issued by the government. 

SGL accounts: These are the accounts which are maintained in the electronic form by the public debt office of Reserve Bank of India. 

So these are the brief details about treasury products which fall under the syllabus of CAIIB’s June 2022 Exam for BFM subject.


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