Introduction to Treasury Management

Introduction :

    Treasury of bank  is considered to be a service center that takes care of funds management. However with the liberalization of financial markets, the scope of treasury functions has been expended and it has now become a profit center having trading activities.

 Basic Role of Treasury :

    i) Liquidity management : Management of short-term funds, CRR, SLR.

    ii) Proprietary positions : Trading in securities / currencies and other financial instruments.

    iii) Risk Management : Bridging asset – liability mismatch.

•To take advantage of trading and arbitrage opportunities in different markets.

•To deploy and the funds/securities for taking maximum return.

•To fund the balance sheet as cheaply as possible.

•To effectively manage the forex assets and liabilities.

•To effectively manage the treasury risk within approved norms.

•To assess, advise and manage the financial risks associated with non treasury assets and liabilities.

•To adopt the best practices in dealing, clearing, settlement and risk management in treasury operation.

Evolving Role of Treasury as Profit Centre

Features of Treasury operations :

    i)   It is free from credit risk.

    ii)  It is highly leveraged as return on capital is high.

    iii) Cost of operation is low.

    iv) It operates in narrow spreads but with huge volumes.

Sources of Treasury profit :

    a) Conventional : Foreign exchange business, Money market deals, Investment activities

    b) Contemporary : Interest and currency arbitrage, Trading. Besides this , treasury sells various type of risk management products. 

Integrated Treasury

Introduction :

    It refers to integration of money market, security market and foreign exchange market operations of the bank.

    The integration is the result of opportunities available to the bank due to liberalization of financial markets.

Functions of Integrated Treasury :  

   Reserve Management and Investment

   Liquidity and Fund Management

   Asset Liability Management

   Risk Management

   Transfer Pricing

   Derivative Products


   Capital adequacy

Benefits of Integrated Treasury

•The basic objective of integration is to improve portfolio profit ability.

•The integrated treasury acts as a center of arbitrage and hedging activities.

•It seeks to maximize its currency portfolio and free transfer of funds from one currency to another in order to remain a proactive profit center.

•Integrated treasury provide single window service to customers. It exchange information between money and forex activities. The effective MIS and regulatory compliance.

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