Advanced Training in Banking & Financial Markets

Case Study International Cash Management

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................... 10 Calculation....................................................................................................................3 2 GOAL...............1 Requirements......................................................1.....................................................................................1......................................5 Product Example......... 11 Relations with other systems........................................1 CROSS BORDER CASH OPIMISATION (CBCO) ..1.................1.................................................................................................................................4 3........1..................1...................................................4 3.4 3................1...............................3 3.....................................................4 3..................................................................................................................1............................. 5 Bonus Margins..........Contents 1 EXECUTIVE SUMMARY......................................................... 8 Management Fee Payment...............2 3....................... 12 2 ............................................1 3.... Reporting & Corrections.......................................1...............................................1............................................................................................1..............................................................................3 3 PRODUCTS......................................

In addition. Additionally. 3. Presentation slides (two in numbers) showing the architecture and logical data model of the proposed solution. This in turn has put forth tremendous challenges on banks IT team for providing optimum solution to aforementioned corporates for efficient management of their ideal cash. the participants are suppose to provide high level technical solution definition for above mentioned requirements. cross border cash optimisation. Furthermore. Presentation slides (two in numbers) showing their understanding of requirements.1 Executive Summary This case study involves detailed analysis and understanding of high level requirements provided by a MNC bank with regards to its cash management product namely. Above deliverables serve as an indicative guideline for the participants. Over last couple of years there is windfall change in the way huge corporates having global presence manage their cash across locations. No effort estimation is required. As a result of working on various projects and experience gained over a period of time. the participants can make appropriate enhancements to above deliverables. The participants are suppose to make a presentation and provide the following in the form of deliverables- 1. the solution being proposed and developed should be configurable/flexible enough to meet future requirements of banks on cash management services front. 2. 2 Goal The primary aim of this case study is to understand the requirements provided for the product Cross Border Cash Optimisation. 3 . High level plan (two slides) to implement this solution. participants can make suitable assumptions while preparing the above deliverables and state those assumptions upfront while making the presentation.

As bank can reward clients to leave larger balances by paying higher interest rates on current accounts (e. 5.1. 5 levels of tiering for bonus margins are needed. The management fee needs to be paid as lump sum payment on a dedicated account no more than 5 days after month-end.3 Products 3.1 Requirements 1. 7. Automated solution for an optimisation scheme whereby a management fee is paid to the client over a total portfolio of credit balances when balance levels qualify. 4. The accounts will be set up in a Cross Border Cash Optimisation Pool and every account may be located in a different country with a different currency.g. 6. CBCO is mostly suitable to include one or more accounts in regulated countries and it will serve as a critical product as part of notional pooling requirement initiatives. by using a High Yield Current Account or Investment Account). Initial countries and (local) currencies supported: • CN China CNY Chinese Yuan • HK Hong Kong HKD Hong Kong Dollars • ID Indonesia IDR Indonesian Rupees • IN India INR Indian Rupees • JP Japan JPY Japanese Yens • KR Korea KRW Korean Wons • MY Malaysia MYR Malaysian Ringgits • PH Philippines PHP Philippine Pesos • PK Pakistan PKR Pakistan Rupees • SG Singapore SGD Singapore Dollars • TW Taiwan TWD Taiwan Dollars • VN Vietnam VND Vietnamese Dongs 3. 2. The management fee is related to the total credit balance of the pool and depending on the level of these credit balances.1 Cross Border Cash Opimisation (CBCO) The intention of Cross Border Cash Optimisation will be to motivate clients for keeping large credit balances at the Bank by paying management fee to clients that have these large balances divided over different Bank accounts. Bonus margins are client specific. 4 . 3. 8. The ability to pay out the management fee in the base currency EUR or USD but with the flexibility of paying out the management fee in any currency if possible. The bonus (interest) amount/management fee will be paid in the currency of the appointed benefit settlement account in any selected country. The ability to pay out the management fee in Singapore or Hong Kong but with the flexibility of paying out the management fee to any other location if possible. Bonus margins are per account.

00 -3.00 -12.1279 0.190.00 0.975.00 0.500.812.9.1279 Balance (USD eq) 1.000.850.00 200. TWD Balance Date 1-Jul 2-Jul 3-Jul 4-Jul 30-Jul 31-Jul 25.000.00 Total 5. 13.170.00 11.000. Management fees need to be calculated on individual currency level (using bonus margins) 11.170.00 -1.00 25.1208 0.00 1.00 15.00 797.400.0318 0. Bonus margins are determined using a “Qualifying balance” which is the sum of the (credit) balances denominated in the Base Currency and is based on end-of-day value balances.000. In addition.580.000.500.00 3. China. The notional Foreign exchange rate would be used to convert daily value balances to the Base currency 12.000.00 -3.1276 0.000.005.000.1277 0.000.000.00 6.000.812.1.00 Step 2: Total balances The converted balances of the different accounts are added per day.170.500.00 Indonesia 3.170. System needs to account for the scheduled and unscheduled holidays during benefit calculation process.000.1276 0.500.000.00 3.000.000.762. 3.400.00 0.250.850.0321 0.00 191.000.000.0317 0.00 notional FX rate 0.000. Calculation of management fee and bonus margins needs to be shown to the client on a monthly CBCO statement.00 -3. CNY Balance Date 1-Jul 2-Jul 3-Jul 4-Jul 30-Jul 31-Jul Taiwan.000.00 5 .000.00 notional FX rate 0.000.00 India -15.000.00 -191.00 Taiwan 795.680.0319 0.000.00 797.00 -3.00 25.000.185.000.00 200.000.1. Balances (USD Eq) Date 1-Jul 2-Jul 3-Jul China 1.500.00 -3.190.00 -47.170.00 2.755.000.00 797. 10.500.500.00 -1. there should be a provision to account for late debit and credits.00 -1.00 -100.00 7.00 Hong Kong -15.1 Product Example Step 1: Determine notional FX and convert daily value balances Daily value balances for all the accounts that are included in the CBCO scheme are converted to the base currency using a notional FX rate for the day.00 80.0319 0.000.032 Balance (USD eq) 795.00 25.

250.850. CBCO will allow for both approaches.00 817.400.00 6.4-Jul 30-Jul 31-Jul 191.617.000.00 -47.850.155.00 -191.00 6.400.155.400.550.00 25.00 51.000.00 80.323.00 5. 6 .400.00 Note: Alternatively only the converted credit balances can be used here (and in the next step) to get the total.850.850.100.150.00 6.00 97.400.00 125.850.00 1.00 6.180.00 557.00 6.00 1.580.

000% IDR 0. Current bonus margins: Total balance ranges (USD) 5-10m 10-20m 20-30m 30m+ CNY 0. the level of which depends on the balance and the bonus margin of that currency.00 Bonus Margin 0. the client will receive the bonus margin per currency on the balances in that currency. bigger bonus margins can be given.580.46 7 . INR Indonesia.250% 0.250% 4-Jul 30-Jul 0. CNY Taiwan. CNY Balance Date 1-Jul 2-Jul 3-Jul 4-Jul 30-Jul 31-Jul (USD eq) 1. Bonus Margin China.000% 1.075% 0.050% 0.850. The higher the total balances.025% 0.125% 2-Jul 3-Jul 0.00 797. For currencies which are more attractive to the bank. each currency gets a bonus margin that applies for that tier.500% If the total balance is large enough and falls within a certain tier.812.850.27 8.025% 0.000. China.250% 0.00 -47.00 80.000% 0.125% 0.00 -191.500% INR 0.500% 0. TWD Hong Kong.025% Bonus Payment 1.125% 0.500% 1.125% 0. This will result into a management fee per currency.500% 0.00 0.375% 0.24 4. the higher the bonus margins (per currency).125% 0.Step 3: determine bonus margins The daily total balance is compared to the tiered pricing which has been agreed with the customer.100% TWD 0.125% 0.400.125% 0.000.00 Bonus Margin 0. IDR 1-Jul 0.375% 0.00 191. TWD Balance (USD eq) 795.72 5. This will be either a regulated rate if in a regulated market.61 Date 1-Jul 2-Jul 3-Jul 4-Jul 30-Jul 31-Jul Taiwan. usually currencies where bank’s net margin is wide.250.400.500% 2.190.125% 0.500. Besides the local interest rate.125% 0.170.250% 0.250% 1.050% 0. which could also be 0% fixed.500% HKD 0.000.025% 0.37 5.00 25.125% Bonus Payment 2.250% 0.00 6. or a rate as agreed with ABN AMRO. HKD India.050% 0.250% 0.00 -3.025% 0.00 3.46 0.125% 31-Jul - Step 4: determine management fee The credit balances on the accounts will get CR interest paid locally as per normal.375% 0.

0m 10. only the maximum bonus margin needs to be set up per account which will reduce manual maintenance and risk or failures. Bonus Payment (USD eq) China. TWD Honk Kong.0m 30.00 The bonus margins are client-specific and need to be updated or reviewed periodically by the sales and product management contact person.2 Bonus Margins Starting-point is the assumption that bonus margins always have the same relative margin ratios for all currencies in the pool. IDR 5.62 3.00 100.00 150. so maintaining the bonus margins cannot be incorporated into an automated solution.00 37.00 200.12 22.08 52. CNY Taiwan.1.50 50.35 6. HKD India.50 25.0 – 30. On CBCO pool level an option will be created to define the relative pricing tiers for the benefit margins valid for all accounts participating in the pool.61 8. There is no direct relationship to a base rate or any other static data.50 25.0m 20.20. Example of bonus margins (bps).00 Indonesia (IDR) 12.50 50. The relative tiers will contain per tier a percentage of the maximum bonus margin of total balance amount that will be paid to the client.0 .m + Hong (HKD) 12. Tiers (USD) 5.1. Having this assumption.00 37.0 – 10. The calculation of this management fee will be shown to the client on a monthly CBCO statement. 8 . INR Indonesia.46 10.00 Kong India (INR) 50.Step 5: pay and report management fee All management fees are totalled and paid out to the client after month-end in a lump sum.

m + Percentage 25% 50% 75% 100% The percentages will normally be static data for a CBCO pool.0 – 20.000. On pool level: Tiers (USD) 5.000 (assume this is equal to USD 2.500 HKD As the management fee will be paid out as lump sum in the base currency (USD in this example) to a dedicated account.5000% * 50% = (Fx rate * Value Balance) * Bonus margin * Bonus tier % = Value Balance in base currency * Bonus margin * Bonus tier % The number of days per year that will be used for calculating the management fee will always be 365 days per year.0m 20. when a client has a total balance of USD 15m and the end-of-day value balance of the HKD account is HKD 1.500 HKD = 5. 9 .5000% * 50% = 2.0 – 30. Per account: Account Currency HKD Accounts INR Accounts IDR Accounts Maximum bonus margin (bps) 50. the management fee (on yearly base) will be.000.000 USD = 2 * 1. This also allows for the option to change bonus margins only per start of a new interest period.000 HKD * 0.0m 10. the management fee needs to be converted to the base currency.000.The above bonus margin table will be set up as follows in the CBCO administration. although the system will give an opportunity to modify it and make new percentages active from the start date of any interest period (can vary for different interest periods but are constant during any interest period). Management fee in base currency = Management fee in account currency * Fx rate Management fee in base currency = 2 * 2.000. Based on the above example numbers.00 The maximum bonus margins are subject to change and need to be maintained by the operations team on request of the sales and product management contact person. New bonus margins can be changed per day.0 – 10.00 200. (can vary for different interest periods and can vary during any interest period).000 HKD * 0.00 50. Value Balance * Bonus margin * Bonus tier % = 1.0m 30.000).

Monitoring Monitoring of payments sent to Routing system from within CBCO will only be possible as far as successful delivery to the Routing system is concerned as Routing system might not be capable of providing information on the actual booking in the back-office systems. This could be accomplished by generating a management fee payment and sending it as urgent payment to the Routing and Settlement system in a standard format.1. Value Date Although the management fee payment will be an urgent payment routed via the Routing system.3 Management Fee Payment 1. This is depending on the send time and the branch. it cannot be guaranteed that the value date of the transaction will be equal to the sending date. CBCO will be able to book the management fee in the countries and currencies in scope. Profit & Loss Account For paying the management fee a counter account is required.1. the administration needs to be enhanced with a P&L account on pool level (contract/service level) with which the management fee can be settled with the dedicated payment account.3. 2.e. Both the P&L account and the dedicated payment account will be located in the same country. 3. 10 . including both UK and US. i. Once the posting interface with routing system has been established. Back Office For CBCO it should be possible pay the management fee on a dedicated account in Singapore or Hong Kong or any other location (USD. the Profit & Loss account. EUR or other currency accounts). no cross-border management fee payments will be used. Moreover the same interface could also be used to pay the management fee to the dedicated account in other countries. In order to be able to pay the management fee to a dedicated account in Singapore or Hong Kong or any other location for CBCO. 4.

4 1. reporting and payments takes place after a pre-defined number of calculation days after the period has elapsed. netted. 2. quarterly or at any manually defined period.1. Recalculation Recalculation always takes place after a period has elapsed and will be executed for the last six months. 7. Prerequisite for calculation and reporting is that all end-of-day statements (MT940’s) have been received in time for the interest period. 6. the change for the management fee will be reported and a correctional amount will be booked (management fee and management 11 . benefit posting to be created that includes the calculated benefit amount and any correctional amounts caused by recalculation of previous periods. Allocation The CBCO system will not use any allocation of management fee to any of the sub accounts in the CBCO pool. Reporting & Corrections Calculation The current CBCO system should calculate and report over monthly.1. Calculation. In order to pay out the management fee as lump sum to the dedicated payment account.5. In case anywhere in the past 6 months contract settings were changed or back valued transactions took place. For monthly and quarterly periods the following types are available: • • • • 1st day month – last day month last day month – 2nd last day month 1st day year quarter – last day year quarter last day year quarter – 2nd last day year quarter Benefit calculation. Security The connection between CBCO and Routing system will be a C-BUS/ MQ connection secured with ICSSv3. This is defined as the number of book days for the country in which the benefit settlement account is located. 3. Moreover the option to maintain the allocation % in the CBCO administration needs to be disabled. Netting In CBCO it is required always one. for CBCO pools the administration therefore needs to be adjusted such that allocation % for participating accounts are set implicitly to 0 % (in case the dedicated payment account is participating as sub account this is 100%).

Furthermore it should be possible to initiate a benefit payment again in case of any failure.used to book the pool benefit between (benefit settlement) accounts held in various countries setup for the Cross-Border Cash Optimisation system. reporting the management fee payment calculation and bonus margins applied.used for authentication of users for Shadow Reporting and CrossBorder Cash Optimisation. giving the flexibility to correct any errors made during contract set up. The CBCO system should allow contract setting changes to be made for periods in the past. In addition. 5. The manually entered value balances will act as the real value balance for calculations in CBCO). It should be possible for Operations to request an intermediate recalculation with or without correction booking of the benefit amount. (For the missing dates in the past. Any corrections made will be reported on the CBCO statement. Security system .to maintain interest models used for defining the spread margin conditions. Common Database – used for accessing customer and account related information. value balances can be entered using front-end. Note: When resubmitting benefit payments. Settlement & Allocation.1.fee corrections are netted and subsequently booked as one amount).used as middleware to send pool benefit postings and in-house interest postings. 3. This functionality should be implemented using the 4-eyes principle. the statement should contain a Summary. Interface system . The format of the CBCO statement will be the Excel format and must be available through intranet. reporting and payments need to be kept consistent.5 Relations with other systems 1. Middle layer . The amount as result of any calculation or recalculation is the amount used in any resubmitted benefit payment. 2. 3. amounts can not be changed due to the fact that calculation. Recalculation and Account sheets. for receiving MT940 messages used to obtain value balance information. 3. Reporting CBCO statement needs to be developed. Balance Maintenance & Reporting system . 12 . 4.1.

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