TARIQ ALI KHAN 0240 DATE: April 30, 2011

The material compiled and presented in this report is a result of hard work. .MUHAMMAD ALI JINNAH UNIVERSITY KARACHI ACKNOWLEDGEMENT All praises are for Allah Almighty who bestowed potentially upon us to accomplish this report successfully. We also have sense of gratitude to Honorable teacher Mr. SALMAN SARWAT for his generous initiation and guidance in writing this project report. This has been prepared as a part of the course requirement for TREASURY AND FUND MANAGEMENT. This report is a Treasury Department Of Dawood Islamic Bank. Without his encouragement and guidance this project would not have materialized.


corporate have started paying closer attention to the treasury and foreign exchange (forex) management. These emerging strategies are linked by one fundamental objective i. Therefore. treasury managers must constantly update their skills in order to effectively undertake their crucial duties. treasury managers must also be able to use and apply financial products in order to maximize profit. Change is being forced with rapid economic developments. and C. the key to corporate survival and growth lies in organizational change initiatives that will contribute directly to the economic value of the firm and its ability to satisfy the financial return requirements of its investors. With significant developments that have taken place in the financial markets in the recent years affecting volatility in exchange rates and accentuating liquidity constraints. The development of gap and sustaining strategies. Increasingly. In a world where investor capital has more choice and mobility than ever before. It should not be surprising to see corporate treasury and treasury strategies involved in organizational change. finance and treasury functions are under pressure to add value to the organization through their operations and contribute to achieving strategic goals. to attract and retain competitively sought-after investor capital or. to facilitate communications and understanding of strategic possibilities. globalizing industries and competition. The management accountants’ main task in cementing the treasury’s strategic role is: A. increase shareholder wealth. B. Corporate treasury function is playing a pivotal role in financial risk management. the business strategies of organizations. the agenda is changing fast.e.ROLE OF TREASURY FUNCTION Introduction For finance and treasury functions. to aid implementation through the use of diagnostics. whilst ensuring the effective management of all forms of risks. With the ever-increasing range and complexity of financial instruments available. treasury and treasury management practices are being aligned with and integrated into. new technologies and revolutionary changes in the regulatory environment.. in other words. . exposure management and the use of hedging strategies are now all seen as essential requirements The concept of corporate treasury is defined through a comparison of traditional and emergent roles. As well as responding to these forces.

. etc. cash flow forecasting.g. etc. Financial Risk Management 4. the scope of treasury management function is quite vast.SCOPE OF TREASURY MANAGEMENT FUNCTION In today’s context. Understanding of macroeconomic policies Understanding of how macroeconomic policies affect prices and costs in the economy Current scenario and future outlook for India and globally Role in accounting policy formation e. Options and Swaps. Cash and Liquidity Management • • • • • • • • • • • • • • • • • • • • Cash flow dynamics. Forex transactions. Accounting. Macroeconomic Policy Environment 5. cash flow valuations Short-term funding investment Cash Management: transactions. Foreign Exchange Risk Management 3. Formation of Policies and Processes (Investment. Forex Management.) Accounting Policies on recognition of Treasury Transactions Accounting Standards on various foreign exchange techniques under US and Indian GAAP 2. as can be seen from the following listing 1. and it continues to expand. Other aspects in Treasury Management . Futures and Options. pooling and netting Working Capital Management Using Debt Instruments International Economics and International Finance International Financial Markets and Instruments Foreign Exchange: Swaps and Forwards Vanilla and Exotic Foreign Exchange Options Interest and Currency Risks Interest Rates: Forwards. Mutual Fund Investments. Interest Rate Swaps and applications Managing Currency Risks with Forward. Futures.

insurance and pension risks. Reducing the risk of operational errors The treasury function frequently manages complex. the right processes are in place for managing and mitigating those risks and that roles and responsibilities are clearly defined and communicated. Performance reporting Reporting and measuring performance is often seen as an additional burden on the overstretched treasury department. As well as traditional risks such as foreign exchange. The challenges include the following (extracted from Accenture’s Brochure on Treasury management services): Expanding risk coverage The range of risks that the treasury function is now expected to cover has expanded.g.• Taxation issues. Well thought out metrics and indicators. Withholding tax on interest paid on overseas borrowings. high-value transactions . THE KEY TREASURY CHALLENGES The world is increasingly global in level of connectivity and every day the pace of information moves faster than the one before. Ensuring the policy is still relevant The treasury policy is the road map for the treasury function and it must keep pace with overall business strategy ensuring that the appropriate risks are identified. treatment of capital gains/loss on investments. can not only be used to measure the performance of the function. but can also help drive high performance. along with a robust reporting framework. e. Treasury is at the heart of the organization and directly challenged by these external forces. etc. liquidity and counterparty risk. the treasury function is increasingly likely to manage commodity price risk. funding.

An operational risk framework that captures. Achieving a clear view of the global cash position Organizations operate on a progressively global basis. categorizes and analyzes loss events is pertinent to both the banking and corporate world. diversity.under tight time constraints. the treasury function has to ensure that it is using the right instruments and investment methods that can fit both the risk profile and the required level of returns within the appropriate time frame. . Depending on the relative autonomy of different business units.may offer a more successful solution. nature and maturity of the debt program it has in place. and requires effective communication between business units. Optimizing Return on Investment With far more options available than simple bank deposits. Other cash management methods-such as payment factories and in-house banking. The treasurer may also provide valuable input into the longer term forecasting and budgeting processes and must work closely with the finance function. which can create the potential for operational errors leading to significant financial loss. Enabling timely and accurate cash flow forecasts Having an accurate and timely view of the global cash position is vital for effective cash flow planning. As a result it becomes increasingly challenging to manage a central view of all banking arrangements. it may not always be practical simply to rationalize all global accounts. Meeting strategic plans Creating a funding program that is sufficiently flexible and responsive to achieve strategic objectives requires the corporate treasury function to make sure that its knowledge and understanding of the group business plans are consistent with the level.

DIBL’s Al-Mustaqeem ATM card offers its customers the convenience of accessing their funds through the country’s ever expanding 1 Link and MNet ATM networks. DIBL has a strong Shariah Board headed by renowned scholar Prof. DIBL has a vision to be the best provider of customer centric Shari’ah compliant products and services in Pakistan. to first create wealth and then help our clients to manage it. DIBL currently has 50 online branches country-wide. DIBL offers an internet banking solution.About Dawood Islamic Bank Ltd Dawood Islamic Bank Limited (DIBL). security and at any time round the clock. Our aim is. April 27. . an easy way for customers to access their account details. 2007. To help our customers to succeed financially and to promote economic and social progress in Pakistan through innovative Shari’ah compliant products. with comfort. Mufti Munib-UrRehman as the bank’s Shari’ah Advisor. e-connect. delivering the highest level of customer service and innovative Islamic finance solutions. Pakistan's sixth full-fledged Islamic commercial Bank officially commenced its operations on Friday. Additionally the Al-Mustaqeem card can be used as a debit card allowing customers facility to pay at 8000 MNet Point of Sales outlets throughout Pakistan.

Group Head Operations & IT Seemin Shafi – Group Head of HRD Ihsan Ullah Ihsan –Chief Risk Officer Naushad Kamil – Head of Internal Audit Sohail Sikandar – Chief Financial Officer. .The bank has a diversified range of Shari’ah Compliant funded and nonfunded products and services catering to the needs of individual and corporate customers. MANAGEMENT The Management Team of DIBL comprises of experienced managers who have been associated with the corporate and financial sectors locally or overseas particularly in the field of Islamic finance. Aamir Ali – Head of Compliance & Control. The bank offers investment and corporate advisory services also. We are proud to have as our management team: • • • • • • • • • • Pervez Said – President & CEO Taimur Afzal – Group Head Consumer Banking Ayaz Wasay – Group Head Treasury & FI Mushtaq Riaz Mirza – Group Head Corporate & SME Saifudidn Shafi .

Security & Fraud Control FINANCIAL SUMMARY . (R) Asif Alvi – Head of Administration. Brig.• • Wajiha Mehdi – Company Secretary/Internal Legal Counsel.



Treasury has the ability to access the interbank money market with both Islamic as well as conventional financial institutions. Treasury also manages the statuary requirements with the central bank and also looks after the activities of its off shore accounts. treasury also facilitates customers who seek advices about the future outlook on the various currencies on a regular basis (without any commitment & obligation).TREASURY DEPARTMENT OF DAWOOD ISLAMIC BANK Treasury according function to the is practiced guidelines prescribed by the Shariah advisor of the bank. treasury will provide shariah compliant investment opportunities in capital market that provides halal income ultimately to its customers . In additions. It manages the liquidity position of the bank and caters to the needs of the branches and customers for their funds requirements in all currencies. DIBL will conduct FCY Commodity Murabaha transaction for their FE 25 US $ depositors with international banks Soon. Under the shariah approved modalities of Musharakah /Murahaba & Mudaraba. Rates in all currencies are provided to Branch/Customers with in shariah guidelines for the booking of trade related transactions as well as for the mobilization of deposits.

TREASURY DEPARTMENT OF DAWOOD ISLAMIC BANK  Retail Banking  Corporate Banking  Islamic Finance Retail Banking • • • Al-Mustaqeem Deposits Al-Mustaqeem Auto Finance Al-Mustaqeem Housing Finance Corporate Banking • • • • • Export Finance Fund Based Product Non Fund Based Product Al-Musharaka Trade Finance Al-Murahabah Trade Finance .

Islamic Finance • • • • • • • • Ijarah Ijarah with Diminishing Musharaka Mudarabah Murabahah Musharakah Qard Wakalah Salam .

3) Capital Market: Investment in stock market shares within the limits prescribed by SBP. by allowing businesses to convert one currency to another currency. The primary purpose of the foreign exchange is to assist international trade and investment. The total investment in shares of Islamic banks shall not exceed 35% of their equity.) 2) Forex market: Primary objective is to maintain NOP by netting of assets and liabilities (FE 25 deposits) and earn exchange gain on foreign gain on foreign exchange transactions. . (SUKUK an Islamic financial certificate. The issuer also makes a contractual promise to buy back the bonds at a future date at par value. similar to a bond that complies with Sharia. Shares will also include units of all forms of Mutual funds excluding NIT units till its privatization. who then rents it back to the issuer for a predetermined rental fee. the issuer of a sukuk sells an investor group the certificate.FUNCTIONS OF TRESURY DEPARTMENT Treasury is profit centre of the bank and the primary objective of the profit centre is to earn the profit by investing in different products allowed by SBP. The main functions of the treasury consist of three markets which are as follows 1) Money Market: Primary objective is to maintain CRR 5% of demand liability and SLR 14% of demand and time liability and invest the surplus funds in money market instrument like Sukuks.

e.STRUCTURE OF TREASURY DEPARTMENT Treasury depends on three segments which are as follows 1) Front office:    Headed by treasurer Next to treasurer is chief dealer And every desk i. FX and equity is headed by their respective heads 2) Middle office:  Headed by Chief risk office 3) Back office:  Headed by Head of treasury operations . MM.

fixed-income products. and communication between branches. where as the reconciliation of payments is ‘back office’ The front office is literally the bank's interface with the market. Queries from the back offices on deals would be filtered through the middle office BACK OFFICE ACTIVITIES • • • The back office sees to accounting records. Example . position management trading. Check that dealing slips are completed correctly and the settlement instructions are proper.) Transverse systems: risk monitoring. the efficiency of the information system is defined by its ability to process transactions automatically and in a secure manner: the byword is . stock markets. The front office coordinates and handles all the needs of the bank and its clients with respect to hedging and financing.In banking. settlement and accounting. payment. liquidity forecasting MIDDLE OFFICE ACTIVITES • • • • Produces the risk management reports and checks for compliance with internal limits. Thus manual dealing slip are collected by middle office staff for onwards transmission to the back office. clearance. compliance with government regulations. arbitrage Front-Office information systems: • • • Electronic listing and trading systems Position-keeping systems often specialized for certain financial instruments (derivatives. etc. and any surpluses are invested in order to maximize its returns. Doing the deal is classed as ‘front office’. • • Investment.FRONT OFFICE ACTIVITIES • The bank needs to optimize its cash flows in order to ensure that shortfalls are fully funded. Tends to be link with the back office. and settlement On all levels. The back office monitors the post-market processing of transactions: confirmation. the back office includes a strong IT processing system that handle position keeping.

In other words. then back office will be responsible for the settlement of transaction front office can initiate the deal but they are not allowed to sign the cheques. DETAIL OF TRANSACTION FLOW All the transactions executed by front office must be settled by back office. transfer the funds or receive the funds and confirmations from the counter parties. Whenever deals executed by front office they will prepare the deal tickets which will be signed by the authorized signatories and will be forwarded to back office. the transaction is processed with little or no manual intervention.STP (Straight through Processing): the transaction is processed straight through. .

8) Future contracts .PRODUCT OF TREASURY DEPARTMENT Treasury deals in many types of products but must be allowed by SBP. Some of which are identified as follows 1) Short term lending to financial institutions through different modes 2) Short term borrowing from financial institutions through different modes. 3) Sukuk 4) Equity shares 5) Foreign currencies 6) Hedging against future contracts of foreign currencies 7) Import / Export deals of customers to earn foreign exchange gain.

 Back office headed by the Head of Treasury operations who reports independently to Operations Head/ Group Head Operations. . segregation of duties and for the prevention of frauds.  Middle office headed by Chief Risk officer who also independently report to CEO. These three segments independently reports to their respective heads and independent from each other due to the strong control.REPORTING SYSTEM  Front office headed by the treasurer and responsible for the all the investments and exposure and treasurer reports to the CEO directly.

HOW TREASURY DEPARTMENT MANAGES RISK Treasury department manage their risk with the help of risk department to manage the risk of treasury every bank have a separate and independent risk department who manage the risk of the treasury investments and provide the limits and parameters in which treasury have to restrict them and are not allowed to go beyond that limits. .

UNIQUE RISK IN ISLAMIC BANK DAWOOD ISLAMIC BANK manages risk through fifteen principles of risk management Guidelines for IBI’s (Islamic Banking Institutions) The principles contained in these Guidelines are designed to complement the current risk management principles issued by the ‘Basel Committee on Banking Supervision’ (BCBS) and other international standard-setting bodies. .

I. 2nd Floor. Trade Centre.Chundrigar Road.Fahad Jawaid | Assistant Manager Treasury Operations| Head Office Dawood Islamic Bank Limited. Karachi  +92-21-32637174-5 Ext: 2510 -Dir +92-21-32272458|  +92-21-32272465 .I.

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