WEEK 1: TREASURY MANAGEMENT AND ITS
FUNCTIONS
TREASURY
- It involves the management of money and financial
risks in a business.
- Its priority is to ensure the business has the money
it needs to manage its day-to-day business
obligations, while also helping develop its long-term
financial strategy and policies.
TREASURY MANAGEMENT / OPERATIONS
- includes management of an enterprise's holdings,
- with the goal of managing the firm's liquidity
- mitigating its operational, financial and
reputational risk.
Treasury Management includes a firm’s:
 Collections
 Disbursements
 Concentration
 Investment and funding activities
 Financial risk management (for larger firms)
TREASURY MANAGEMENT
-can be understood as the planning, organizing and
controlling holding, (POC) of funds and working
capital of the enterprise in order to make the best
possible use of the funds, maintain firm’s liquidity,
reduce the overall cost of funds, and mitigate
operational and financial risk.
TREASURY MANAGEMENT BANKS IN THE
PHILIPPINES
-Large banks in the Philippines have a division
devoted to treasury management.
- A bank's treasury management/cash management
division is a highly specialized area designed to meet
the unique investment and risk coverage needs of
institutional and corporate customers.
- The Treasury Management of a bank is
responsible for balancing and managing the daily
cash flow and liquidity of funds within the bank.
- Treasury also handles the bank's investments in
securities, foreign exchange, asset / liability
management and cash instruments.
TREASURY MANAGEMENT MODERN CORPORATION
Treasury occupies a central role in the finances of
the modern corporation.
- It takes responsible for Company’s liquidity—
ensures that a company always has enough cash
available to meet the needs of its primary business
operations.
FUNCTIONS OF TREASURY MANAGEMENT
-Treasury Management aims to ensure that
adequate cash is available with the organization,
during the outflow of funds.
- It also contributes to the optimum utilization of
funds and makes sure that there are no unutilized
funds kept in the firm for a very long term.
- Cash Forecasting
- Working Capital management
- Cash Management
- Investing Management
- treasury risk management
- Fund raising
- Credit Granting
(C,W,C,I,T,F,C)
CASH FORECASTING
- The accounting staff generally handles the receipt
and disbursement of cash, but the treasury staff
needs to compile this information from all
subsidiaries into short - range and long - range cash
forecasts.
- These forecasts are needed for investment
purposes, so the treasury staff can plan to use
investment vehicles that are of the correct duration
to match scheduled cash outflows.
- The staff also uses the forecasts to determine when
more cash is needed, so that it can plan to acquire
funds either using debt or equity.
WORKING CAPITAL MANAGEMENT
- A key component of cash forecasting and cash
availability is working capital, which involves changes
in the levels of current assets and current liabilities
in response to a company general level of sales and
various internal policies.
- The treasurer should be aware of working capital
levels and trends and advise management on the
impact of proposed policy
changes on working capital levels.
CASH MANAGEMENT
-The treasury staff uses the information it obtained
from its cash forecasting and working
capital management activities to ensure that
sufficient cash is available for operational needs.
- The efficiency of this area is significantly improved
using cash pooling systems.
- Ensures that there are an effective collection and
payment system in the organization.
INVESTMENT MANAGEMENT
- The treasury staff is responsible for the proper
investment of excess funds.
- The maximum return on investment of these funds
is rarely the primary goal.
TREASURY RISK MANAGEMENT
- The interest rates that a company pays on its debt
obligations may vary directly with market rates,
which present a problem if market rates are rising.
- A company’s foreign exchange positions could also
be at risk if exchange rates suddenly worsen.
- In both cases, the treasury staff can create risk
management strategies and implement hedging
tactics to mitigate the company’s risk.
FUND RAISING
-A key function is for the treasurer is to maintain
excellent relations with the investment community
for fund - raising purposes
CREDIT GRANTING
- The granting of credit to customers is useful for the
treasury staff to manage, since it allows the
treasurer some control over the amount of working
capital locked up in accounts receivable.
TREASURY MANAGEMENT
- Simply put, treasury management is the
management of all financial affairs of the business
such as raising funds for the business from various
sources, currency management, cash flows and
various strategies and procedures of corporate
finance.
- Ultimately, the treasury department ensures that a
company always has sufficient cash available to meet
the needs of its primary business operations.
WEEK 2: SEGREGATION OF DUTIES
- Roles that define segregation of duties and control
across a treasury.
1. A Front office
2. A Back-office
3. A Middle Office
FRONT OFFICE
- It is the dealer or trader who books the trades and
executes it.
Three main responsibilities of Front Office:
1. Fund Management
2. Foreign Exchange / Interest Rate Management
3. Risk Management
FUND MANAGEMENT
- Ensure day-to-day cash requirements and long-
term needs.
- Analyzing reason for inability to fund cash outflows
from cash inflows.
FOREIGN EXCHANGE / INTEREST RATE
MANAGEMENT
- Ensuring liquidity in foreign exchange funds
without compromising profitability.
- Handling multi-currency exposures.
- Managing complicated dynamics fluctuating
exchange/interest rates/tax position management.
RISK MANAGEMENT
- Identification of risks faced by the firm and level of
risk acceptable (maximize return and minimize cost
at level acceptable to the firm)
- Formulate risk management strategy (active
management engagement in minimizing risk by
using various hedging techniques)
CONCEPT OF FUND GENERATION /
DEPLOYMENT
SOURCE AND USER OF FUNDS (BANKS)
Source = INVESTORS / DEPOSITORS
- Receives a reward (capital gain/interest)
for contributing funds to the pool.
• Capital – funds infused by stockholders
• Liability – funds received from depositors
(bank) via deposit / placement
User = CORPORATE BANKING, TREASURY,
BANK BRANCHES
- Charged a penalty (pay interest to investors) from
withdrawing funds from the pool.
WHAT TO DO WITH THE FUNDS?
TOTAL FUNDS
• Capital
• Deposits
FUNDS DEPLOYMENT
Assets: Investments & Loans
Operating Cost: Building, Equipment,
Salaries

PRINCIPLE OF TRANSFER POOL RATE

- It is the process of establishing an internal
price of funds among users and providers of
MANAGEMENT PROFITABILITY REPORT
funds within the bank.
- It summarizes Assets (USE) and Liabilities/Capital
- Pool of funds are established and managed
(SOURCE) generated by the business segments and
by Treasury.
Treasury, Corporate Banking, Business Banking and
Basis for Transfer Pool Rate
Executive Office.
a. Bank’s Liquidity Position
- It reflects the net profit and loss derived from:
b. Market Interest Rate
a. the difference between the asset and income less
c. Market Outlook on Interest Rate
TPR expense and
b. the liability expense less the TPR income.
 TPR deposit at 4%
 Bank received deposits of 1,000,000 @ 3% per
annum

PRINCIPLE OF TRANSFER POOL RATE

a. Deposit TPR ( bid ; ceiling rate)
 An interest rate ceiling is the maximum interest
rate permitted in a particular transaction.
 It is the opposite of an interest rate floor.
BACK OFFICE
b. Loan TPR (offer ; floor rate)
(SUPPORT / PROCESSING / OPERATIONS AND
 An interest rate floor is an agreed-upon rate
DOCUMENTATION)
in the lower range of rates associated with a
- Its function is responsible for settlement,
floating rate loan product.
processing and documentation, confirmation and
 Interest rate floors are utilized in derivative
accounting.
contracts and loan agreements.
- To perform the processing and risk monitoring
 This contrasts with an interest rate ceiling (or cap). functions that are carried out independently from
the trading function.
- To ensure that control points are in place for all
aspects of the day- to –day process in order to
control the Market, Credit, and Operational risks
arising from Front Office transactions.
MIDDLE OFFICE
- It is responsible to enforce and review risk limits
and exceptions.
- Its role is to issue policy guidelines relative to
management and reporting of all trading risks.
- Review organizational issues.
- Clear designated authorities.

WEEK 3: CONCEPT OF INTERNAL DEALS

FRONT OFFICE
- It is the dealer or trader who books the trades
and executes it.
Trading Desk • It is the only one allowed to take
trading position within the bank.
Sales /Distribution Desk • If it deals with a
customer/counterparty, it must buy or sell the
corresponding financial instrument or currency
from the Trading desk.
CONCEPT OF INTERNAL DEALS
- The internal linkages between the Trading and the

WEEK 4: MONEY MARKET

Sales/Distribution desks creates the “internal deal”.


MONEY MARKET
- is a marketplace for the trading of short-term cash
and debt.
- Maturities range from overnight to one year and
the participants include private individuals
(necessarily of a high net worth), corporations,
public bodies and financial institutions.
- It has very low risk and liquid.
Non-financial institution participants - operate in
the market largely to invest cash surpluses or to
fund short-term borrowing requirements.
Financial institutions - use the money market
both to manage their own positions and to provide
a service to their corporate customers.
IMPORTANCE OF MONEY MARKET
- The money market has an organized banking
system.
- It comprises of many submarkets dealing with
various forms of credit instruments.
- An established money market consists of near-
capital assets of different kinds, such as exchange
bills, treasury bills, and bonds.
- It also has access to both domestic and foreign-
investment financial outlets.
- The money market securities are considered
highly liquid and are fixed-income securities with a
shorter period of maturity.
- Money market instrument issuers have strong
credit scores. Therefore, the instruments of the
money market are suitable for investment purposes.
- One of the key characteristics of money market
instruments is that they are sold against face value
at a discounted price.
MONEY MARKET INSTRUMENTS
Treasury Bills • government securities issued every
Wednesday via electronic auction at BSP.
Commercial Papers • Issued by private corporations
to meet its short-term working capital obligations
(usually 1-270 days).
Promissory Notes • Issued by banks to private
investor to raise funds.
Negotiable Certificate of Deposit
• short term, with maturities ranging from two
weeks to one year.
• Interest is usually paid either twice a year or
at maturity, or the instrument is purchased at a
discount to its face value.
• Interest rates are negotiable, and yield from an
NCD is dependent on money market conditions.
INTERBANK CALL LOANS
• Overnight lending and borrowing among banks.
- It happens every day in the late afternoon when
banks finished their days’ transaction (overall
withdrawal and deposit) creating liquidity position
which could be:
 positive or excess of cash
 negative or short of cash or
 sometimes square wherein the difference in the
deposit versus withdrawal transactions is
insignificant.
- Daily IBCL is used as the benchmark of daily market
interest rate.
MAJOR TRANSACTIONS IN BANK
Deposits - Comprises of all the money going into the
bank like deposit, interest income on bank
investment or proceeds from matured investment,
inward online payment, SSS, Meralco, BIR, matured
loan payment to the bank etc.
Withdrawals - Comprises of all payouts like
withdrawals, interest payment to the client, outward
remittances, releasing of approved loan, bank
investment, etc.

= Bank A has 500 branches. Every day, before 6:00

P.M., these branches should have already sent the
summary of all the two major transactions to
Treasury Department which will determine the
liquidity position for the day.

3 TYPES OF LIQUIDITY POSITION

Excess of Cash • resulted from overall heavy deposit
transactions during the day.
Short of Cash • resulted from overall heavy
withdrawal transactions during the day.
Square • deposits and withdrawal almost the INTERBANK CALL LOANS
same (with the given acceptable margin for example Are banks allowed not to correct any of its days’
100 million) liquidity position?

- NO, BSP penalizes banks for not correcting its

INTERBANK CALL LOANS liquidity position reflected in their demand
- Bank with excess cash must lend it out to the bank deposit account with BSP.
whose position is negative (borrow) as against their
DDA or demand deposit account with the BSP where
all deposits and withdrawal transactions of bank
reflect affecting Reserve Requirement
- Interbank Call Loan is done in an overnight basis.
- Banks which are not able to correct the position
will be penalized.

WEEK 5: TREASURY BILLS

✔ are short-term evidences of indebtedness issued

by the Philippine government backed by the Bureau
of the Treasury of the Republic.

✔ With a maturity of less than a year; it can be

- 91 Days,
- 182 days
- 364 days.
✔ Usually sold in denominations of
- P1,000,
- P50,000,
- P10,000
✔ These are the most actively traded zero-coupon
debt instrument in the Philippine bond market.

✔ It serves as a form of government internal

borrowing from the public.

✔ Large domestic banks are obligated to participate

(bid) every Wednesday via electronic auction.
IMPORTANCE OF TREASURY BILLS

Government as borrower:
✔ It is used for the effective management of short-term
funding needs of the government.

✔ It is easily marketable and widely held as liquid assets.

✔ It is regarded very safe.

✔ With the security they offer, the yield on treasury bills is

lower than that on eligible bills accepted by banks.

T-BILLS TRUE DISCOUNT FORMULA

✔ It is usually sold at a discount to its face value and
redeemed at face value (at par).

✔ The additional amount of money received by the

investor at maturity is the investor's income for holding
the security.

Wherein:

Par value = face amount of investment

Yield = rate
Term = computed as actual days (91, 182, 364)

Par Value∗360
Discounted Value=
360+( yield∗term)
Discount=Par Value−Discounted Value
Tax on Discount=Discount∗0.20
Total Payout =¿Discounted Value +Tax on Discount