Vous êtes sur la page 1sur 22

Treasury Products

CAIIB

Bank Financial Management

Module C

Risk Management

https://iibfadda.blogspot.com/ 1
Treasury Products

There are 3 main markets for Treasury for Risk


Management.

1. Products of Foreign Exchange Market


2. Products of Money Market
3. Products of Securities Market

https://iibfadda.blogspot.com/ 2
Treasury Products

1. Products of Foreign Exchange Market -


Foreign exchange (Forex) market is the most liquid market as
free currencies (Major currencies which are fully convertible eg.
USD, GBP, JPY etc.

a. Spot Trades: Spot means currency bought and sold, with set
telement on the same day i.e. Today.

b. Forward Rates: Forwards refer to purchase or sale of a curre


ncy on a future date.

Forward exchange rates are arrived at on the basis of interest


rate differentials of two currencies, added or deducted from
spot exchange rate.
https://iibfadda.blogspot.com/ 3
Treasury Products

c. Swaps: A combination of spot and forward transactions, or a c


ombination of two forward transactions is called a swap.
- A swap transaction is also described as an exchang
e of cashflows.

Ex:Buying USD (with Rupees) in spot market and selling same a


mount of USD in forward market or vice versa, constitutes a U
SD/INR swap.

If there is purchase and sale of currency on two forward dates


(Forward to Forward) is also a swap.

https://iibfadda.blogspot.com/ 4
Treasury Products
d. Investment of foreign exchange surpluses: Banks are permi
tted to invest foreign exchange surpluses in globle money mar
kets/in short-term securities. These can be done by

1. Inter-bank Loans: Short-term deposits with domestic and


globle banks.

2. Short-term investments: Banks are premitted to invest


overseas in short-term instruments of high credit quality like Tr
easury Bills/ Gilts issued by foreign Governments.

3. Nastro Accounts: Nastro accounts are current account


denominated in foreign currency, maintained by the banks with
their correspondent banks in the home country of the currency.
Balance in Nastro account not earn any interest.
https://iibfadda.blogspot.com/ 5
Treasury Products

e. Loans and advances: Banks give loan by means of FCNR loan


s, PCFC and discount of foreign currency bills to select customers.

Treasury is more actively involved in short-term funding, as part of its cas


h flow management.

f. Rediscounting of foreign bills: Banks are purchased / negotiate


d foreign currency bills by another banks.

https://iibfadda.blogspot.com/ 6
Treasury Products
2. Money Market Products
Call money: The money that is lent for one day in this market is
known as Call Money.
The call money market is an integral part of the Indian Money
Market,where the day- to-day surplus funds (mostly of banks) are
traded.

Notice Money :If it exceeds one day but less than 15 days, it is
called "Notice Money“

Term Money: It is exceed of 14 days, but not exceeding 1 year.

Participants of call money market : RBI , Banks can borrow as


well as lend in this market.
LIC, UTI, IDBI, NABARD, ICICI and mutual funds etc. can
only lend in this market.
https://iibfadda.blogspot.com/ 7
Treasury Products

Banks borrow in this market for the following purpose

1. To fill the gaps or temporary mismatches in funds.


2. To meet the CRR & SLR mandatory requirements as
stipulated by the Central bank
3. To meet sudden demand for funds arising out of large
outflows.

https://iibfadda.blogspot.com/ 8
Treasury Products
Treasury Bills:

Bills are issued by Government of India against their short term


borrowing requirements with maturities ranging between 14 to
364 days.
Presently RBI is Issuing 91 days , 182 days & 364 days T-bill

All these are issued at a discount-to-face value.


For example a Treasury bill of Rs. 100.00 face value issued for
Rs. 91.50 gets redeemed at the end of it's tenure at Rs. 100.00.

Who can invest in T-Bill : Banks, Primary Dealers, State Govern


ments, Provident Funds, Financial Institutions, Insurance Com
panies, NBFCs, FIIs (as per prescribed norms), NRIs can inve
st in T-Bills.
https://iibfadda.blogspot.com/ 9
Treasury Products
Commercial Paper (CP):

CP is a short term usance money market instrument, issued by


corporate , Primary Dealers and Financial Institute (FI) to raise
short term resources.

1. The eligible company shall obtain credit rating minimum P2.


2. Net worth as per last balance sheet must not be below Rs.4 cr.
3. Any advances from bank must be under standard asset clasific
ation of the bank.

Maturities period between a minimum of 7 days and a maximum


of up to one year.
CP can be issued in denominations of Rs.5 lakh or multiples.
https://iibfadda.blogspot.com/ 10
Treasury Products

Certificates of Deposits (CD):

CDs are against funds deposited at a bank or other eligible financial


institution for a specified time period either in Fixed or Floating rate.

CDs can be issued by all scheduled commercial banks except RRBs

Minimum period 15 days


Maximum period 1 year
Minimum Amount Rs 1 lac and in multiples of Rs. 1 lac

https://iibfadda.blogspot.com/ 11
Treasury Products

Repo:

Repo is used for lending and borrowing for 1 day to1 year.
Repos being short term (overnight) money market instruments
are necessarily being used for smoothening volatility in money
market rates by RBI through injection of short term liquidity into
the market as well as absorbing excess liquidity from the system

when RBI absorbs liquidity it is termed as Reverse Repo and


the RBI injecting liquidity is the repo operation

Reserve Bank gradually extended repos facility to all Central


govt. dated securities, Treasury Bills and State govt. securities

https://iibfadda.blogspot.com/ 12
Treasury Products

Repo/Reverse Repo:

RBI generally conduct Repo auctions for overnight period, twi


ce daily – but RBI has power to change frequency of the acti
ons.

https://iibfadda.blogspot.com/ 13
Treasury Products
Collateralized borrowing and lending obligation (CBLO)

There is fixed term ranging from 1 day to1 year.


CBLO is a RBI approved money market instrument.

- Members can contribute securities and / or cash towards their


collateral / margin for operating in the CBLO segment
- The minimum cash collateral of Rs.1 lacs needs to be maintaine
d by a member at all time
- The securities eligible as collateral are central government
securities including Treasury bills as specified by CCIL from time
to time
- Banks are permitted to invest in equity subject to capital market
exposure

https://iibfadda.blogspot.com/ 14
Treasury Products

Bills rediscounting:

Treasury will discount bills of exchange of short-term nature (3 to 6


months).

The benefit to the lending bank is that their funds are invested at
term money rates and the credit risk is low as they have recourse
to the discounting bank.

https://iibfadda.blogspot.com/ 15
Treasury Products
(3) Securities market products:

-Government Securities:
To satisfy SLR requirement, banks can invest in Government
securities.
G-sec yeild set benchmark rates for corporate bonds, RBI has
issued bonds for various maturities ranging from 1 years to 30
years, so as to establish a market determined yield curve.

- Corporate debt paper:


Corporate debt paper refers to medium and long-term bonds and
debentures issued by corporates and financial institutions, which
are tradables.
They are non-SLR securitites.
Banks are allowed to invest only in demat securities.
https://iibfadda.blogspot.com/ 16
Treasury Products

- Debenture and bonds:


These are issued by corporate bodies, literally with a charge on
specific assets.
The literal meaning has been lost in practice and debentures and
bonds may be issued with or without securities.
Debentures are governed by company law and are transferable
only by registration
Bonds are negotiable instruments governed by law of contracts.

- Convertible Bonds:
Bond-holders are given an option to convert the debt into equity.
Coupon on convertible bond is generally lower than the
coupon on non-convertible bond.
https://iibfadda.blogspot.com/ 17
Treasury Products

Equities:

Banks are permitted to invest in equities subject to a limit on capital


market exposure, set by RBI.

Equity are highly risky so bank treasuries are generally cautious in


investing surplus funds in stock market.

https://iibfadda.blogspot.com/ 18
Treasury Products

Domestic and global markets: Funds can be swapped freely


from one currency to another currency or transfer easily from one
market to another market. These can be done by options like:

a. FII investment: Foreign investment flow in india by way of foreig


n direct investment (long project related investment ) and portfoli
o investment (In stock market or debt market).
In FII investors investment banks and hedge funds are included.

b. ADR / GDR issued by indian companies: Issue equity in globa


l market by ADR/GDR. Holder of ADR/GDR have a option to sell
their holding in domestic market and received proceeds in foreig
n currency.

https://iibfadda.blogspot.com/ 19
Treasury Products

c. External Commercial Borrowings: (ECB): Indian companies c


an borrow in global market from banks or issue debt paper with
guldeline issued by RBI to fund their project.

d. Foreign currency funds of banks: Banks can use their FCNR


deposit funds for investment in overseas markets as well as for
domestic lending in foreign currency. It is used for short term loa
ns.

e. Special facility to exporters: Banks can allowed pre-shipment


and post-shipment facilities to exporters in foreign currency.

https://iibfadda.blogspot.com/ 20
Treasury Products

f. Overseas Direct Investment (ODI): RBI allows corporates to in


vest in joint ventures / subsidiary units overseas, from their Rup
ee resources subject to a cap based on their networth (currently
4 times their net worth).
This has allowed leading Indian business groups to expand glob
ally by establishing companies or by acquiring other companies.

g. Free remittance: Individuals are now permitted to remit oversea


s freely, without RBI approval, up to USD 2,00,000 a year, for an
y purpose ( with a few exceptions like gambling and margin tradi
ng). The may choose to invest the funds in global debt, equity or
simply spend the money for consumption purposes.

https://iibfadda.blogspot.com/ 21
Treasury Products

Thank You

https://iibfadda.blogspot.com/ 22

Vous aimerez peut-être aussi