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ROLLNO. 1208006!
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Functions are as under:
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• F*#&%#8 9 Planning and controlling the sourcing of both equity and debt funds for the business
• C+$- 4+#+8'4'#, 9 organizing and scheduling day-to-day movement of cash and other money market
• T('+$*() ."$, ."#,("0 9 efficient negotiation of interest rates, bank service costs and the cost of other
finances raised for the business
• T('+$*() +&4%#%$,(+,%"# 9 Dealing with banks and other financial agencies
• T('+$*() +.."*#,%#8 9 Comlying with the relevant accounting standards on accounting and reorting of
cash and cash equivalents
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• S,(+,'8%. /*#&$ 4+#+8'4'#, 9 !he vanilla function of funding has now given way to a strategic "ob of
short-term and long-term sourcing and use of funds that imroves the financial health#
• S)$,'4+,%. .+$- 4+#+8'4'#, 9 $dvanced cash management services have come u in the last %& years that
focus on effectively minimizing the 'cash float( i#e# the sterile money in the ieline, which does not earn
• T('+$*() ."$, 4+#+8'4'#, 9 )t is no longer enough to control the bank interest and service charges, in view
of treasury cost variants available now, like fi*ed and floating rate swas and derivatives# $s instruments
multily, with newer and more attractive features, cash management has to consider these and decide which
ones to use in the attemt to reduce treasury costs#
• T('+$*() +&4%#%$,(+,%"# 9 !he single-vendor concet has become outdated, and businesses are working
with multile vendors in the Finance sace + banks, ,-FCs, loan syndicates and financial consultants for
secific uroses# !he comle*ity of treasury requirements has made secialization mandatory#
• T('+$*() +.."*#,%#8 9 $ccounting and reorting standards have tightened across the globe, and after scams
like .atyam it has become crucial for comanies to regularly monitor treasury reorting#
2-T-' %#,'('$, (+,' "//'('& "# C'(,%/%.+,' "/ D'1"$%,$ 3+(%'$ /("4 :+#; ," :+#;. R'/'( $"4' "/ ,-' 1*:0%.
$'.,"( +#& 1(%3+,' $'.,"( :+#;$ +#& +#+0)<' ,-' /+.,"($ +//'.,%#8 ,-' %#,'('$, (+,'$.
C'(,%/%.+,' "/ D'1"$%,$ =CD$>7
Certificate of deosit /CD0 is a short-term instrument issued by scheduled commercial banks and financial
institutions# )t is a certificate issued for the amount deosited in a bank for a secified eriod at a secified rate of
interest# !he concerned bank issues a receit which is both marketable and transferable by the holder# !he receits
are in bearer form and transferable by endorsement and delivery# -asically they are a art of bank(s deosits1 hence
they have less risk associated with reayment# CDs are interest-bearing, maturity-dated obligations of banks# CDs
benefit both the banker and the investor# !he bankers need not worry about remature cashing of the deosit as the
investor can sell the CDs in the secondary market if she needs cash# CDs can be issued only by scheduled banks# )t
is issued at discount to face value# !he discount rate deends on the market conditions# CDs are issued in the
multiles of 2 3 lakh and the minimum size of the issue is 2 3 lakh# !he maturity eriod ranges from 4 days to one
year# !here is no restriction on the discount rate and the bank is free to fi* its own rate#
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.chedule commercial banks are eligible to issue CDs:
• 5aturity eriod is from 4 days to one year
• -anks are not ermitted to buy back their CDs before the maturity or grant loans against the CDs
• CDs are sub"ected to C66 and .tatutory 7iquidity 6atio /.760 requirements
• !hey are freely transferable by endorsement and delivery# !hey have no lock-in eriod#
• CDs have to bear stam duty at the revailing rate in the markets
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=I> M+.(" /+.,"($7 -
• Cost of living inde*: )ncreases in rice levels of goods and services over a eriod of time reduce real
value of the ruee and interest rates#
• 5onetary olicy changes : 6-) works with monetary olicy to balance the twin ob"ectives of economic
growth and rice stability for a develoing economy#
• Condition of economy : 8hether the economy is raidly growing or its growth rate is declining can
make a difference#
• 9lobal liquidity : 9lobal economic environment and availability of funds across the world does have an
• Foreign e*change market activity : Foreign investors demand for debt securities influence the interest
rate# :igher inflows of foreign caital lead to increase in domestic money suly which in turn leads to
higher liquidity and lower interest rates#
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• )ndividual credit and ayment track record, credit rating
• )ndustry in which the business is oerating
• ;*tent of leveraging of the comany viz# debt-equity ratio
• <uality of rime security and collateral
• 7oan amount
.ome names of banks: $*is bank, )C)C) bank, .-) bank etc#
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0%?*%&%,) 1(+.,%.'$ %# )"*( ."41+#)6

7iquidity is defined as the e*tent to which an asset or security can be traded in the market without affecting the
asset=s rice# 7iquidity is characterized by a high degree of trading activity# $ssets that can be easily bought or sold
are known as liquid assets# 7iquidity for a cororate entity is related to the business cycle# !he liquid assets of the
firm move fast in an economic boom, while they are much harder to convert to cash in a slum#
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• >rganization(s trade volumes, frequencies and short-term need for cash
• .ales distribution through the year and 8orking caital cycle
• Current asset ortfolio of the business
• $vailable credit lines
• >rganization ownershi structure
• >rganization(s reutation in the marketlace
• !he risk orientation of the management
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;very organization should lay down a standard set of guidelines on olicies and controls to ensure that liquidity is
maintained in an otimal range# !he standards will be based on the factors selt out above, alicable to the
organization# )n articular these should cover the following asects:
• .ales distribution through the year and 8orking caital cycle
• !rade credit
• Debt financing
• )nvestment of surlus funds
• 5inimum and ma*imum cash balances
!he guidelines should also be clear about the authority levels for decisions on the above asects, and about handling
of e*cetions#

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)n an economy, the enhanced desire to urchase goods and services results in a corresonding increase in demand# )t
enhances liquidity in the market, which in turn reduces the robability of financial crises and the outut losses
associated with such crises# !he benefits as a result significantly e*ceed the otential outut costs in the economy#
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• Frequent trading and symmetric relationshi between the buyers and sellers
• 6educed inflation
• Protection of shareholders= wealth from forced sale of assets
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9a analysis is a technique which is used to measure interest rate risk# !he une*ected changes occurring in interest
rates which hamer the organization(s rofits and market value of equity can be measured using ga analysis# !his
is relevant to financial institutions like banks, and can be of interest to a cororate entity only if it has large cash
balances that are being arked in interest-bearing investments for a short while before being invested in the
business# )t may be useful to a lesser e*tent to a comany with large debt caital#
$ few tyes of ga analysis used for measuring interest rate risk are:
• Duration ga analysis + !his method evaluates the sensitivity of the worth /market value0 of financial
instruments to the changes in interest rates#
• Cumulative ga analysis + )t is used to evaluate the imacts on net interest income due to the changes occurring
in interest rates#
• Dollar value ga analysis + )t deals with measuring the money value of the assets resent in the bank(s balance
sheet which are sensitive to the changes in interest rates#
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!he !reasury :ead of a cororation needs to kee an eye on the sensitivity of monetary assets and liabilities on the
balance sheet to interest rate risk# .ome recommended methods of doing this are:
• )ncreasing asset sensitivity by urchasing short-term securities, reducing loan maturities, and making rates
aligned to market movement
• )ncreasing liability sensitivity by relating maturity eriods of liabilities to the urose for which they have been
contracted: a short-term sike in working caital should be funded with a short-term loan which would leave no
room for e*osure to longer-term interest rate fluctuation#
!reasury liabilities like caital, bills ayable, rovisions and inter-office ad"ustments are not rate-sensitive# 6ate-
sensitive liabilities include:
• .hort-term liabilities which are sensitive to interest movement# !reasury has to estimate the sensitivity of
floating-rate liabilities in articular#
• 7ong-term borrowings, fi*ed and floating + Fi*ed borrowing re-rices on maturity and is sensitive# !he
amounts must be distributed based on the remaining maturities# !he floating borrowings re-rices with resect
to reset of interest rates# !he amount must be distributed aroriately based on re-ricing date#
!reasury assets like cash, bank accounts, inter-office ad"ustments, fi*ed assets and equity investments are not
sensitive# .ensitive assets include:

• )nterest-bearing loans, advances or deosits: !he carrying balance is sensitive to interest rate variations and has
to be restated#
• 7eased assets: ;arnings from a leased asset on floating rates are sensitive# !he carrying amount has to be
restated based on the date wise cash flows#
$ll derivatives on the balance sheet are sensitive to rate variations#
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!he following strategies could be used for controlling )665 in an organization:
• I#,'('$, (+,' '@1'.,+,%"#$ $,(+,'8) + !he organization must forecast the future level of interest rates and alter
ortfolio sensitivity to the e*ected changes# Duration is the ma"or factor in interest rate sensitivity#
• I#&%3%&*+0 :"#& $'0'.,%"# $,(+,'8%'$ + !his is the rocess of identifying misriced securities and reositioning
in better securities during the realigning of markets to make rofits#
• Y%'0& $1('+& $,(+,'8%'$ + !his strategy involves ositioning ortfolio with resect to e*ected changes in yield
sreads among various sectors of bond market#
• D'(%3+,%3' $,(+,'8) + )t involves the rocess of hedging against adverse movements through interest rate
derivatives# !he various derivative instruments include:
o F"(2+(& (+,' +8(''4'#,$ + !his is the rocess of trading over the counter such that secific rate is alied
to a secific rincial during secified future time eriod#
o I#,'('$, (+,' $2+1$ + !he interest rate ayments are e*changed on the same rincial amount with mutual
agreement between the two arties#
o I#,'('$, (+,' /*,*('$ + )t refers to the standardized forwards contracts traded with derivative e*change#
-A$$*4' )"* +(' + ,('+$*('( "/ + ."41+#) +#& )"* +(' /+.'& 2%,- ,2" $%,*+,%"#$. E@10+%#
-"2 )"* 2"*0& $"03' ,-'$' 1(":0'4$.
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=+> L+(8' 0"+# ('1+)4'#, ."%#.%&%#8 2%,- &'0+) %# ('.'%1, "/ + 0+(8' ,(+&' ('.'%3+:0'A
$ bill of e*change is used money market instrument is used in this case# $ bill of e*change is a financial instrument
which is traded in bill market# $ccording to the )ndian ,egotiable )nstrument $ct, 3??3 @it is a written instrument
containing an unconditional order, signed by the maker directing a certain erson to ay a certain amount of money
only to, or to the order of the bearer of the instrument#@
-ill of e*change is drawn by the seller on the buyer for the buyer for the value of goods or services delivered by the
seller# !hey are therefore trade bills# !hey are negotiable instruments freely transferable by endorsement and
delivery and acceted by banks# !he liquidity of bills of e*change is ne*t only to call loans and !-bills# !here are
two tyes of bill of e*change: accommodation bills and documentary bills#
A.."44"&+,%"# :%00$: $ccommodation bill is a bill of e*change which is acceted and sometimes endorsed
without the backing of any trade in goods or delivery of services#
D".*4'#,+() :%00$ : !hese bills are accomanied by documents related to goods such as loading bills, railway
receits or bill of lading, or related to erformance of services#
=:> L".;%#8 *1 .*$,"4'( +&3+#.'$ %# 1+)4'#, ,"2+(&$ /%@'& +$$',$.
$ reverse reo is alied in this case in which customer advances in ayment towards fi*ed assets# )t is a
transaction of cash in which the lender urchases an asset from the borrower as a guarantee to get the loan reaid at
the agreed interest on a secified date# )t is the same transaction of reo but from the view oint of the lender# )n
other words, it is a reo transaction for the borrower, but the same transaction is a reverse reo for the lender#
6everse reo was started to earn additional income on idle cash# !he difference between the rate at which the
securities are urchased and sold in the lender=s rofit# !his transaction has an element of security urchase and sale
as well as money market borrowingAlending#
6-B(%'/0) '@10+%# +, 0'+$, ,-('' +.,%"#$ ('0+,%#8 ," ,('+$*() ,-+, -+3' .-+#8'& $*:$,+#,%+00) 2%,-
80":+0%<+,%"#. V%$%, + :+#; +#& +#+0)<' ,-' 3+(%"*$ ,('+$*() 1("&*.,$ "//'('& :) ,-' :+#; ," %,$
.*$,"4'($. I&'#,%/) 2-%.- "/ ,-'$' +(' $*%,+:0' /"( + 0+(8' ."41+#) 2%,- .+$- ," %#3'$,B +#& 2-).
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=%> F"('@ 4+(;',7 Fore* market is a market where currencies of various countries are traded# )t is the most liquid
market as free currencies such as B.D, ;B6> and other currencies are instantly bought and sold# Free currencies
refer to the currencies develoed countries# Partially convertible currencies have limited#
=%%> M"#') 4+(;',7 5oney market is a short-term market with maturity eriod less than one year# !he funds are
borrowed of lent for a short term# !he money market roducts are !reasury bills /!-bills0, Commercial Paer /CPs0,
Certificate of deosit /CDs0, reo and bill rediscounting# $lmost all these are relevant for banks and banking
comanies# !reasuries of comanies can float CPs and make very short-term investment in other instrument#
6ediscounting and reo are urely between banks#
=%%%> C+1%,+0 4+(;', : Caital market work for the creation and trading of financial assets like stocks, bonds, hybrid
instruments, commodities and derivatives# $ number of articiants like brokers, dealers, investment bankers and
financial mediators oerate in caital markets#
F+4%0) B+#; T('+$*() D'1+(,4'#, "//'($ ,-' /"00"2%#8 1("&*.,$ +#& $'(3%.'$7-
/%> S1", /"('%8# '@.-+#8' &'+0%#8 %# +00 ,-' 4+C"( .*(('#.%'$ - 8e buy and sell foreign e*change to or from
customers and banks at very cometitive rates#
=%%> S2%/, "( ,'0'8(+1-%. ,(+#$/'( - 8e offer inward and outward swift transfers, which is very safe, cost effective
and convenient ayment method# Funds received are credited to customers account within two working days and
also funds are transferred to the beneficiaries within two working days after instruction receit#
=%%%> F"('%8# .*(('#.) +.."*#,$ - Customers can oen and maintain foreign currency accounts in B#.#Dollar,
.terling ound and ;uro#
=%3>F"('%8# D(+/,$ - !hese are bankers cheques denominated in foreign currency1 normally used in aying fees and
other services abroad# 8e offer B#.# dollar, .terling ounds and ;uro foreign drafts#
=3> F"(2+(& ."#,(+.,$ - 8e buy or sell foreign currencies for deliveryAreceit at a future date between 3 to C
months1 this is a hedging roduct offered to both customers and banks#
A@%$ :+#; ,('+$*() "//'($ ,-' /"00"2%#8 1("&*.,$7-
=%> C*(('#.) $2+1$ -!his roduct can assist customers with surlus funds in one currency and require liquidity in
another currency# 8e offer very cometitive interest rate differentials#
=%%> I#,'('$, (+,' "1,%"# - !ransaction is a contract that gives the otion buyer right, not obligation, to demand from
the seller /issuer0 e*ecution of the otion and ayment of the amount of the cash settlement for the interest eriod#
=%%%> F"(2+(& ."#,(+.,$ - 8e buy or sell foreign currencies for deliveryAreceit at a future date between 3 to C
months1 this is a hedging roduct offered to both customers and banks# Commitment by the client to buy or sell one
currency against another at a fi*ed rate for delivery on a secified future date, or during a eriod#
=%3> S'.*(%,%'$ - .ecurities roducts form an integral art of integrated treasury# )n securities market investors can
buy and sell the roducts available in the securities market# .ome of the securities roducts available are:
9overnment securities, cororate debt, Debentures and bonds and convertible bonds#
=3> S1", ."#,(+., : )t is the simlest and most common foreign e*change transaction widely used by cororate to
cover their receivables and ayables# Commitment by the client to buy and sell one currency against another at a
fi*ed rate for delivery two business days after the transaction# !his eliminates the ossible risk due to e*change rate
fluctuation for the client# Cororate can buy or sell foreign currency for genuine transactional uroses only