TREASURY MANAGEMENT

Treasury management include liquidity management, funding management, currency

management.To manage cash and curreny effiently larger corporation hae separate treasury
department.
LIQUIDITY MANAGEMENT:
The company should make sure that it has enough funds when it needs and invest surplus.It
includes
Working capital management
Banking relationships: In case of of banking relationship the treasyrer will perform the following
tasks:

 Bank account analysis

 Bank account management
 Loan covenents imposed by banks

Funding management:
Funding management I concerned/deals with all forms of borrowing and alternative source of
financing i.e leasing and factoring.

CURRENCY MANAGEMENT:

RISK & REWARD

There is a trade off b/w risk and reward investors having riskier assets wants to be
compensated for risk.

Potrfolio:
Investment in more than one security builds up a portfolio
 Investment can be in stocks and shares
 Investment can be in capital projects
PORTFOLIO THEORY:
Suggested by Markowitz gives guidelines to build up a portfolio.
FACTOR INFLUENCING CHOICE OF INVESTMENT:
Liquidity: in time of need investments must be converted into cash
Growth prospects: Investor must invest in profitable investments having growth prospects
Risk spreading: Investor should build a portfolio of investments that can spread risk i.e. losses
on one investment must be offset with return on other.
Return: Investmets should give high return with low risk

RISK VS RETURN
An indivual holding portfolio expects return on it that return is weighetd avereg of returns of
investments in a portfolio also knows as expected return
The differce between expected retuen and actual retuen is called risk.
Extra:
Investor theory suggests that an individual must not consider investment on basis of risk and
return.They are some other factor too like cheacking the relationship bw return of one
investment with return on other also known as corre.ation
There are three types of correlation
Positive:If one investment does well or badly the other investment perform similarly
Negetive:If one investment does well the other does bad
No correlation:
The investments are independent of each other
Risk can be mitigated by diversification.

Disadvantages of diversification:
HEDGING FNANCIAL RISK
Forigen currency risk is a two way risk Can be favourable as well as adverse

TYPES OF fx risk:
Translation risk: Exchange loss when translating subsidiaries into home currency
Transaction risk:Risk occour in international trading transactions
Economic risk:It is a risk in which one currency appreciate or depreciate agains
other currency so that economy of one country become less or more competitive.
Causes of exchange rate flustions
Comparative rates of Inflation in different countries (PP parity)
Comparative rates of interest in different countries(Intrest rate parity IRP)
IRP predicts forward rates.
INTREST RATE PARITY THEORY:
The difference b/w spot rate and intrest rates reflect the differences in intrest rates.

PURCHASING POWER PARITY THEORY:

States that exchange rate between two curriences will be in equilibrium when the purchasing
power of currency is same in each country

CURRENCY RISK MANAGEMENT

The reson of risk management is that actual events may turn worse than expected
Following are the ways to hedge risk

 Dealing in local currency

 Matching recipts and payments
 Leading and lagging
 Money market hedge
 Futures
 Options

NETTING;
When a company expects to fx recipts and payyents in same currency and in same time it can
off set payments with recipts to minimize risk