What is a treasury management ?

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The art of managing, within the acceptable level of risk, the consolidated fund of the bank optimally and
profitably is called Treasury Management.

Treasury management (or treasury operations) includes management of a company's holdings, with the
ultimate goal of managing the firm's liquidity and mitigating its operational, financial and reputational
risk.

Treasury Management includes a firm's collections, disbursements, concentration, investment and

funding activities.

7 SCOPE OF TREASURY MANAGEMENT

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A treasury department is to control and manage the bank's money (in terms of capital and liquidity) and
to make sure that all parts of the bank can readily access the cash they need for their business activities.

LIQUIDITY MANAGEMENT

MONEY MARKET TRANSACTION

CAPITAL MARKET TRANSACTION

CORRESPONDENT BANKING

FOREIGN EXCHANGE MANAGEMENT

RATE DETERMINATION

8 LIQUIDITY MANAGEMENT

The objective of liquidity management is to maintain adequate level of liquidity and raise profitability of
the bank managing the surplus liquidity.

Bank will follow raising cash on short notice with low cost as possible in shortage of funds and convert
funds in earnings assets if surplus funds are available.

In the situation of surplus liquidity, the treasury should use in money market lending, reverse repo,
buying T-bills, and government securities.

When the bank is in situation of deficit of liquidity, treasury should go for any of interbank borrowings,
borrowing against T- bills and bond or debentures or Repo, Standing liquidity facility by NRB, liquidation
of Treasury bills and bonds, Accepting and calling deposits etc.

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9 MONEY MARKET TRANSACTION

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Money market is market where short term security with high liquidity are traded.

It is used as a means for borrowing and lending in the short term basis i.e. one year or less than one
year.

The investment in Treasury bills shall be done for the purpose of maintaining statutory liquidity ratio
and managing returns and liquidity.

The treasury department will purchase the Treasury bill within the approved limits.

10 CAPITAL MARKET TRANSACTION

Capital markets are the market where long term securities are traded. In capital market, long term debt
and equity are buying and selling.

This type of market is composed of the both the primary and secondary markets.

Treasury department shall make the long term investment in capital market instruments like
government bond, corporate bonds, preference shares and equity shares.

These investments should be done through primary as well as secondary market under the directives
issued by Nepal Rastra Bank.

11 CORRESPONDENT BANKING

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Another scope of the Treasury is the correspondent banking.

Correspondent banking provides credit, deposit, collection, clearing and payment services to banks and
financial institutions.

These types of services are limited to bank and financial institutions.

12 FOREIGN EXCHANGE MANAGEMENT

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The foreign exchange market or forex market as it is often called is the market in which currencies are
traded.

This is because the value of one currency is determined by its comparison to another currency.
The first currency of a currency pair is called the ―base currency, while the second currency is called the
counter currency.

The currency pair shows how much of the counter currency is needed to purchase one unit of the base
currency.

13 RATE DETERMINATION

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Treasury should use two way pricing system to publish rates.

Normally, price will be moved freely on the basis of the forces of demand and supply in the market.

Dealers are responsible for issuing daily exchange rates of each convertible foreign currency.

These are fixed against Nepalese rupees at the start of the business each morning.

The spread of buying and selling rate would be as determined by the authority.

Dealers will issue revised rates during the business hours if market conditions change significantly
PRINCIPLES OF TREASURY MANAGEMENT

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1. PRINCIPLES OF SECURITY

The banks should invest the investible funds in safe or secure areas in which default risk will be
minimum.

Banks should refund the peoples’ money at their demand or after certain period of time mention in the
contract.

Thus, the Treasury management of the bank should decide to invest in the safe areas.

27 PRINCIPLES OF TREASURY MANAGEMENT

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2. PRINCIPLE OF LIQUIDITY

The basic objective of liquidity management is to maintain adequate level of liquidity to meet borrower
and depositor’s demand.

The banks should have adequate funds to meet their various requirements.

To meet these obligation banks need to have sufficient resources as a liquid fund.

The banks will create such assets which can be liquidated (converted into cash) as required.

28 PRINCIPLES OF TREASURY MANAGEMENT

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3. PRINCIPLE OF PROFITABILITY

The investments made by banks should provide the maximum returns possible.

Bank’s main objective is to maximize profit since it is a profit making business.

Therefore, the bank’s assets are allocated in such a manner that increases profitability.

29 PRINCIPLES OF TREASURY MANAGEMENT

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4. PRINCIPLE OF PORTFOLIO

Portfolio is the combination of investments in two or more than two financial assets.

The objective of the portfolio is to minimize the risk or diversification of risk.

The Treasury department should invest in the portfolio of various assets with the objectives of the risk
mitigation.