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Treasury Management (Including Forex Treasury)

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Treasury Management (Including Forex Treasury) Advanced Module: Treasury Management (Including Forex Treasury) PART-I Treasury – An Overview 1. Treasury - Its evolution, importance, ideal treasury department, front office/mid office and back office 2. Theories of Treasury Management 3. Functions of Treasury Department 4. Liquidity Management in Treasuries – Cash Forecasting 5. Banking Relationships 6. Credit Management 7. Treasury Services a. Bank Treasury b. Government Treasury c. Corporate Treasury d. International Funding Organizations 8. An insight into a. Float b. Availability c. Sweeps d. Account Analysis e. Clearing houses f. Lockboxes g. Disbursement h. Reconciliation 9. Investment or Treasury Policy Manual 10. Risk management policy 11. Exposure to Treasury Management Software – an insight into various software used for treasury management and their demos. Few Examples Finacle Treasury SAP Treasury Oracle Treasury PART-II The Mathematics and Arithmetic of Treasury Management 1. Cross-currency forwards – calculation of premium / discount etc. – preutilisation of contracts 2. Exchange Rate movements – volatility of major currencies. 3. Exchange Rate movements – volatility of major currencies 4. Exchange Rate and Interest Rate arbitrage – NDF markets 5. FEDAI guidelines for merchant quotes. 6. The treasury calculations - Use of Excel as a tool, Developing formulae, Constructing Tables 7. Present and future value of money – benchmark rates for discounting cash flows 8. YTM calculation –modified YTM, current yield etc. 9. Yield curve – building of ZCC – use of ZCC yields 10. Term structure of interest rates 11. Risk Measures – VaR – Duration and Mecaulay Duration – 12. Interest rate sensitivity 13. Liquidity & interest rate sensitivity gap measures under ALM – RBI guidelines 14. Financial Statement Analysis ingredients – Earnings, Assets and Cash flows 15. Financial analysis Approach, Profitability Ratios and growth 16. Return Ratios 17. Solvency Ratios 18. Liquidity Ratios 19. Efficiency Ratios 20. Valuation Ratios PART-III Classification of Treasury Market -Broad classification of Treasury Market Domestic or National Treasury market and Forex or International Treasury. Features, Products, Dimensions, Ideal Ticket Size, Regulatory Framework. Domestic and International Treasury Markets -Domestic or National Treasury Market 1. Capital Market primary and secondary Issues 2. Issue of GDR 3. Money market 4. Commodity market 5. Government Securities Market -International Treasury Market 6. Market participants 7. Currency Trading 8. Investment in global securities – portfolio management 9. Global debt market – syndications, FRN & bond issues and convertible debt 10. Multinational companies – political /country risks / capital budgeting – mergers & acquisitions 11. Mobilising global debt and equity funds – interest and tax considerations – process for syndications and debt issues PART-IV Money Market Operations Changing Facets of global monetary system – Regional blocks and unified currencies Impact of recent global crises – Role of IMF Debt Capital Markets – All types of Bonds Bond market – G-sec and corporate bonds – variety of bonds including zero coupon and perpetual bonds STRIPS - Primary and secondary market volumes Highly Traded Markets o Cash Market and Forward/Futures Market o Forward/ Futures Market and Options Market o Exchange Traded and Over-the-counter Market RBI Policy rates – liquidity support for banks and PDs Market practices & FIMMDA guidelines -Foreign Exchange (Forex) Markets Different kinds of Forex markets, History of Forex Markets, Nature of transactions – cross border currency flows relating to capitalmarket, world trade and speculative Liberalisation of exchange control regime Current regulatory environment – role of RBI and SROs like FEDAI & FIMMDA Derivatives and also Interest Rate Derivatives PART-V Treasury Products& Regulatory Provisions Commercial paper Treasury Bills Promissory notes Certificate of deposit Factoring Forfeiting Bill discounting Private equity Other Alternative Investments Credit Rating Agencies Portfolio Management Services PART-VI Futures, Options, Forward & swaps Forwards, Futures and FRAs Use of derivative products like interest rate futures and currency futures Collars, Options Futures & Options their uses - Indian and Overseas Markets PART-VII Risk Management & Risk Framework – Treasury and Forex Assets Liability Management(ALM) – bridging liquidity and interest rate sensitivity gaps ALM Book – Merchant book & Trading Book Liability Management, using interest rate derivatives Treasury Risk Management Policy, Treasury Organisation –Front Office, Back Office and Middle Office Control and Reporting requirements Open position – day-end, day-light and overnight position limits – limit orders with other banks Mismatch of positions – gap limits (IGL – Individual Gap Limite and AGL – Aggregate Gap Limit) and stop loss limits VaR& capital provisions Developing Risk Framework for Organizations and Individual issue of Instruments Monitoring risks in open positions – Risk limits Exposure limits Foreign Exchange exposures to Risk and its Management Credit risk, country risk, operating risk and market risk Approach to Forex Risk Management Policy Developing Risk Framework for Forex Transactions Implications of BASEL III on capital requirement FEDAI Rules – RBI guidelines for Internal Control Hedging strategies – mandatory and optional hedging – transaction- wise / portfolio-wise risk management PART-I Treasury – An Overview Treasury-Evolution, Importance & an Ideal Treasury Department Treasury management (or treasury operations) includes management of an enterprise's holdings, with the ultimate goal of maximizing the firm's liquidity and mitigating its operational, financial and reputational risk. Treasury Management includes a firm's collections, disbursements, concentration, investment and funding activities. In larger firms, it may also include trading in bonds, currencies, financial derivatives and the associated financial risk management. Most banks have whole departments devoted to treasury management and supporting their clients' needs in this area. Until recently, large banks had the stronghold on the provision of treasury management products and services. However, smaller banks are increasingly launching and/or expanding their treasury management functions and offerings, because of the market opportunity afforded by the recent economic environment (with banks of all sizes focusing on the clients they serve best), availability of (recently displaced) highly-seasoned treasury management professionals, access to industry standard, third- party technology providers' products and services tiered according to the needs of smaller clients, and investment in education and other best practices. For non-banking entities, the terms Treasury Management and Cash Management are sometimes used interchangeably, while, in fact, the scope of treasury management is larger (and includes funding and investment activities mentioned above). In general, a company's treasury operations come under the control of the CFO, Vice-President / Director of Finance or Treasurer, and are handled on a day to day basis by the organization's treasury staff, controller, or comptroller. Bank Treasuries may have the following departments: A Fixed Income or Money Market desk that is devoted to buying and selling interest bearing securities A Foreign exchange or "FX" desk that buys and sells currencies A Capital Markets or Equities desk that deals in shares listed on the stock market. In addition the Treasury function may also have a Proprietary Trading desk that conducts trading activities for the bank's own account and capital, an Asset liability management (ALM) desk that manages the risk of interest rate mismatch and liquidity; and a Transfer pricing or Pooling function that prices liquidity for business lines (the liability and asset sales teams) within the bank. As businesses recover from the global meltdown, treasury management is becoming essential. Treasury management has long been an important aspect of many corporations‘ financial management. It ensures the business is accurately tracking its daily sales and payments in an effective manner, while also having sufficient liquidity to meet both expected and unexpected financial obligations. Significant changes to regulation that will be coming into force in the following years are set to transform the ways in which treasury managers do their jobs. These regulations, in particular Basel III, will affect how Treasury Management Systems (TMS) are utilised, and how important they are perceived to be. The industry is facing a period of change as the way companies employ treasury management is shifting. There are more choices of which system a company wishes to use, as well as how they install it. The cloud is opening up opportunities for outsourcing at lower costs than creating or buying an in-house treasury management system. Companies can opt for ever-more customizable systems that particularly suit their business model and needs, in order to ensure they get the most from treasury management. More companies are realizing the importance of treasury management. A global survey by Accenture, the professional services consultancy, found that the top-performing companies considered their levels of liquidity risk as either their primary or secondary concerns. After all – cash only has value when it is easily accessed. Basel III regulations As globalization
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