OLE! UNIVERSITI TUNKU ABDUL RAHMAN FACULTY OF ACCOUNTANCY, FINANCE AND BUSINESS ACADEMIC YEAR 20172018 JANUARY/FEBRUARY EXAMINATION, | BBMIE3085 BANK TREASURY MANAGEMENT. SATURDAY, 3 FEBRUARY 2018, ‘TIME: 2.00 PM —5.00 PM (HOURS) BACHELOR OF BANKING AND FINANCE (HONOURS) Instructions to Candidates: ‘This paper is divided into two sections and you are required to answer FOUR (4) questions as follows Secton A: This ONE (1 question it compulsory and mt be atompted. (40 marks) Section B: Answer ANY THREE @) ot of four questions, (0 marks) A workings that support the answers should be shown. Mirks willbe awarded for clarity in presentation and logical arguments. ‘You are required to coninee with «fresh page when answering new questions or parts of the question “This question paper consists ofS questions on 3 ped passe.2 [BHMES055 BANK TREASURY MANAGEMENT. SECTION A (40 maris) ‘This ONE (1) question is compulsory and mst beatempted, Question 1 © © © Extra Money Bank had recently aquired mansgement contol of Free Bank. After the scquisition was completed Extra Money Bank discovered that Free Banke hes serous management isues in is Treasury Department de to lx rik management practices in ts foreign exchange and money market operations. ‘You have been appointed to hind the Treasury Division of Fice Bank and have been instructed to cary out a review to improve the bank's money market and foreign exchange operations. Required: (] Discuss the onto that needed tobe established in Free Bank's money market and foreign operations to misgate and misimise the various risks in the bank's teastry operations, ‘(lomarss) (Explain the types end ast ofthe varios rks which exist inthe money market and feregn exchange operations of «ban (lO marks) [At the mecing ofthe Asset Liability Commitee (ALCO) of Hope Bank, the Treasurer informed the ALCO that he bunk as docided to move it “Tong fanded positon”. Required: (Explain the tem “Tong funded postion” and the Hkely reasons that had prompted Hope Bank o adopt this finding stateay. (Simaris) (i) Dsseribo the potential rks associated with taking @ long fnded position finding strategy. (Saris) ‘Assume toy is Monday, 8 January 2018. ABC Holdings had informed you that it wished to ‘make a payment of GRPS milion to one of i suppliers in United Kingdom (UK) on Wedoesday, 10 January 2018. Your checks on your GBP Nosro Account with your comespondent bank in UK showed that on Wednesday, 10 January 2018, the Nestro Account willbe in deficit by exacdly GBPS milli. Your GBP correspondent bank is agreeable to und the deft tan imarest ate of 9% per annum. Required Determine the money market del you would se to find your GAP Nostro Account on Weeinesday, 10 January 2018. You ae t include in your answer, the payments ow diagram With te valu dates and caleulsons of he interes payable to your UK earespondet bank. CO marke) (ova: 40 mks) ‘This question paper consists oF5 questions on 5 pried pages‘BU)EI093 BANK TREASURY MANAGEMENT SECTION B60 marks) Answer ANY THREE @) out of four questions Qucstion 2 © ‘Bank Negara Malaysia (NM) is constantly monitoring the banking syst and if there i exces liquidity, itmay seth need to drain the exces Equity om th ystom, [Explain the three methods that BNM may use to achive is objectives of mopping up excoss ligt andthe impact ofits ctios on los interest aes. (marks) ©) Aone month money market placement is quoted at 325% 3.50% Assuming your bak has a policy that al placements must havea profit ofa east 50 basis points, indicate yur best evo way quote oa export customer Who i keen 10 deposit RMI milion fr one month, (marks) i) Ta interbank money market vansadons, bankers adhere src to qualities of & “good” two way money market placement quot, Wentty TWO (2) qualities of» good two-way money marke placement quote and ‘explain the rationale for such a pain. mais) (© 0n2 January 2018, ABC Bank purchased a 91 day Banker's Accoptance (BA) for RMI nillon fiom X¥Z. Bank ata discounted rae of 3.0% per annum, On the stme day, Good Bank purchased a 91 day Malaysian Government Treasury Bil (MGTB) witha fe value of ‘RMI milion ata coat of MYR 993.268 49, Required (Compute the cost that ABC Bank aid for the BA. marks) (i) Compute the discounted rte at which Good Bank had purchased the MOTB. Cmts) Gi) Comment on the rate of returns af the above BA and MGTB. mas) (ta: 20 masks} Question 3 (8) Desesibe briefly how you would use each of the following Treasury prods: (Deposits r Straight Placements (DEPOS); Gis) i) Carrey Swaps: Gnas) (Gi) Currency Options mats) “This question paper consists of questions on 5 prin pages4 | BDMME3095 BANK TREASURY MANAGEMENT ‘Question 3 (Continued) (©) Asthe newly appoinied Treasurer ofa multi-national corporation with worldwide operations, ‘you are tosubmit a Reportto streamline theeflecve management of currency vs. Require: Explain TWO (2 areas which must be covered in the above report. mais) (©) Describe ROUR (4) risks which a bank would need to ares if eters into a one month fixed forward delivery contact with ancer bank domiciled in Affica, an the tansaction volves an ext eureney tat isnt commonly traded in the foreign exchange markets. (mks) (Tova: 20 marks} Question & (On 2 February 2018, Hope Bank appointed you as a foreign exchange trader specialising in USDIMYR transactions with an overnight foreign exchange cureey Timi. n adion, your foreign exchange tadig loses, Fan, ae subject toa maximem of MYR 50, 00-0, “Ths, depending on your viws onthe movements ofthe frcgn exchange aes, you have the option to lve your trading poston open overight but you need to take preaudenay measures (9 limit your trading loses to comply with the ruling on maximum ss. Hope Bank adopts a revaluation policy ofall wading profi o loses a heen of each tadig dy. ‘Taarate tobe applied isthe mid =a ofthe preving spot rites ‘At the end ofthe trading day your books showed you have exscuted the following transactions: ‘1425 milion USDIMYR at 42550 ‘Sold 10 milion USDIMYR at 43560 ‘Bought 26 alion USD/MYR st 4254s ‘Sold 8 milion USDIMYR st 42570 “Thespot te prevailing a atthe close of the trading day was USDIMYR 4.554060. Required: (@) Compute the dae foroign exchange transactions, the average cot of our potion and the revaluation profivss fem the above ransttons (Omari) (©) Explain your options as an inter-day foreign exchange trader on how 1 deal wih your end of. day foreign exchange position and how you may limit loses to comply with your bank's ruling (Comatks) [ota 20 mars} “This question paper Consists oF 5 questions on 5 printed pages5 ‘BBME3093 BANK TREASURY MANAGEMENT. Question S (Explain, wih an example each the following common strtepes employed by major corporations (©) Cres crensy matchings Ci Ferien exchange ik siting. (©) Deserve riety, with an example cach the allowing: (© Coumerpany ss (8) Seulement ae intemal foreign cureney hedging mas) (marks) (4m) (masks) (©) Explain what “negatively gapped position” is andthe stable money market conditions that ‘may enable a bank to eap gins i adept such poi. (marks) (Tost: 20 marks} This quston paper consis ofS questions on 5 pated pages