PROGRAM MBA - SEMESTER IV

SUBJECT CODE & NAME - MA0042/MA0047

TREASURY MANAGEMENT
1. It is said that treasury exposure allows
treasury management to various risks in
the organisation.Do you agree ? Justify your
agreement/disagreement.
Yes, I agree with the statement that treasurey exposure allows treasury
management to various risks in the organzation. Such risks are as below: Any company that has a commitment to receive foreign currency payments
in the future or pay any foreign currency in the future is subject to foreign
exchange risk due to adverse movements in foreign exchange rates. Being at
risk to such movements in foreign currency is called currency exposure.
Foreign exchange exposure is a measure of the change in a firms
profitability, net cash flow and the market value as a result of a change in
exchange rates. When foreign exchange rates change, the impact on a firm
can be measured in several ways. Currency risk consists of transaction,
translation and economic exposure.

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2. Explain Asset Liability Management (ALM)

Information System in banks. Analyse the Interest
sensitivity and ALM.
Liquidity Management
Liquidity is a banks capacity to fund increase in assets and meet both
expected and unexpected cash and collateral obligations at reasonable cost.
The banks need to avoid unacceptable losses and enhance profit. An
effective management of liquidity can increase cash efficiency of a bank by
squeezing out the maximum value from its cash resources and optimizing
working capital performance. Much will depend on the visibility a bank has
on its business transactions.
Similarly, it is important for a bank to get its forecasting right.
Overestimating surplus cash may force a bank from either pulling out of a
project or arranging for investments on a short notice. This is where a bank
runs into liquidity risk, which can be defined as the inability of a bank to

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3. Highly rated corporate borrowers in India
are permitted to issue unsecured debt-notes
to meet the need of their working capital. In
the light of this statement cite two such

popular instruments
essential features.

and

explain

their

1. Commercial papers:
Commercial papers are promissory notes issued by large firms with high
credit rating to raise short-term funds from the money market.
These are negotiable, short-term unsecured debt instruments. Individuals,
banking companies, corporate bodies registered or incorporated in India,
unincorporated bodies, non-resident Indians and Foreign Institutional
Investors (FIIs) can invest in the issue of CP.
Securities and Exchange Board of India (SEBI) sets limits for investments by
FIIs in India and accordingly FIIs can invest only within those limits. The
advantages of CPs are:

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4. Compare and contrast the features of ADRs and

GDRs. Distinguish between Depository Receipts
and Participatory Notes. What is a Foreign
Exchange Derivative ?
American depository
(ADRs/GDRs)

receipts

and

global

depository

receipts

The following are the features of GDRs and ADRs:

These are in the nature of a certificate or receipt issued by an international
depository bank outside the country.
These are issued to non-resident investors.
These are issued against the issue of foreign currency convertible bonds or
against the issue of shares by the issuer company.
These are negotiable in nature.
The issue of ADRs is quite expensive due to stringent provisions set by the
Securities and Exchange Commission in the United States.

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5.
Critically analyse the tools available for
managing risks in a financial institution.
Financial Institutions
Risk analysis and management tools serve multiple purposes and come in
many shapes and sizes. Some risk analysis and management tools include
those used for:
Strategic and Capability Risk AnalysisFocuses on identifying,
analyzing, and prioritizing risks to achieve strategic goals, objectives, and
capabilities.
Threat AnalysisFocuses on identifying, analyzing, and prioritizing
threats to minimize their impact on national security.

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6. What are the assumptions in preparation

of gap report in terms of assets, liabilities as
well as off balance sheet items ?
The gap report should be generated by grouping rate sensitive liabilities,
assets and off-balance sheet positions into time buckets according to
residual maturity or next repricing period, whichever is earlier. The difficult
task in gap analysis is determining rate sensitivity. All investments,
advances, deposits, borrowings, purchased funds etc. that mature/reprice
within a specified timeframe are interest rate sensitive.
Similarly, any principal repayment of loan is also rate sensitive if the bank
expects to receive it within the time horizon. This includes final principal
payment and interim installments. Certain assets and liabilities receive/pay
rates that vary with a reference rate. These assets and

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