Treasury Management

SSBM, Semester III

Batch 2011-13
Slides – Week 6
 Week 5 Agenda
• Swaps
– Examples
– Valuation
– Risk Management
– Future Issues

Arvind Sampath
 Week 6 Agenda
• FOMC and RBI – Analysis of Central banks
statements
• Swaps Recap
• Assignments
• Internal Evaluation
• Global Markets
• Forwards
• Foreign Exchange Markets
Arvind Sampath
 Week 6 Agenda
• FOMC and RBI – Analysis of Central banks
statements
• Swaps Recap
• Assignments
• Internal Evaluation
• Global Markets
• Forwards
• Foreign Exchange Markets
Arvind Sampath
 FOMC - 02 Aug
• The Committee expects economic growth to remain
moderate over coming quarters and then to pick up
very gradually. Consequently, the Committee
anticipates that the unemployment rate will decline
only slowly toward levels that it judges to be
consistent with its dual mandate. Furthermore, strains
in global financial markets continue to pose significant
downside risks to the economic outlook. The
Committee anticipates that inflation over the medium
term will run at or below the rate that it judges most
consistent with its dual mandate.
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 Additional measures
• The Federal Reserve said it will pump fresh
stimulus if necessary into the weakening
economic expansion to boost growth and
reduce an unemployment rate that’s been
stuck at 8 percent or higher for more than
three years.

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 Twist
• The Fed said it will continue swapping $667
billion of short-term debt with longer-term
securities to lengthen the average maturity of
its holdings, an action dubbed Operation
Twist. The central bank will also continue
reinvesting its portfolio of maturing housing
debt into agency mortgage-backed securities.

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 Low Rates for long
• The Fed left unchanged its statement that
economic conditions would likely warrant
holding the benchmark Fed funds rate near
zero “at least through late 2014.” The
committee said it “will closely monitor
incoming information on economic and
financial developments.”

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 RBI Monetary Policy July 31
• Based on an assessment of the current macroeconomic situation,
we have decided to keep the policy rate and the CRR unchanged.
Accordingly, the repo rate stays at 8 per cent and the CRR at 4.75
• Consequently, the reverse repo rate under the liquidity
adjustment facility (LAF), determined with a spread of 100 basis
points below the repo rate, remains at 7 per cent. Similarly, the
marginal standing facility (MSF) rate, which has a spread of 100
bps above the repo rate, also stands unchanged at 9 per cent.
• Separately, we have decided to reduce the statutory liquidity
ratio (SLR) of scheduled commercial banks from 24 per cent to 23
per cent of their NDTL with effect from the fortnight beginning
August 11, 2012

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 Growth Inflation Dynamics- RBI
• As regards inflation, the headline WPI inflation has
remained sticky, above 7 per cent. This has been on
account of increase in food prices, increase in input
costs, and upward revision in prices of some
administered items such as coal. Headline inflation has
persisted even as growth has moderated and the
pricing power of corporates has weakened. Non-food
manufactured products inflation has also not declined
to the extent warranted by the growth moderation.
This reflects severe supply constraints and
entrenchment of inflation expectations.
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 Growth Outlook - RBI
• Growth last year was 6.5 per cent, down from 8.4 per cent in the
year before. Although more recent data suggest some pick up,
the overall economic activity remains subdued. In order to
assess inflationary implications, we need to see the current
growth rate in comparison to the trend growth rate. The Reserve
Bank’s estimates suggest that the post crisis trend rate of
growth, which was earlier estimated to be 8.0 per cent, has
dropped to  7.5 per cent. This means that the current rate of
growth is lower than the trend. However, the output gap, which
is the difference between the actual and trend rate of growth,
will remain relatively small. Under these conditions, demand
pressures on inflation can re-emerge quite quickly, exacerbating
the existing supply pressures.
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 Inflation Outlook
• First, the monsoon has been deficient and uneven so far. This will have an
adverse impact on food inflation.
• Second, notwithstanding some moderation, international crude prices
remain elevated. On top of that, the rupee depreciation has added to
import prices, putting upward pressure on domestic fuel prices.
• Third, the adjustment of domestic prices of petroleum products to
international price changes is still incomplete. Going forward, the
embedded risks of suppressed inflation could also impact fuel prices in
India.
• Fourth, non-food manufactured products inflation has not moderated in
line with the slowdown in growth.
• And finally, input price pressures on account of exchange rate movement
and infrastructural bottlenecks in coal, minerals and power may exert
upward pressure on non-food manufactured products inflation.
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• Let me now conclude by summarising our macroeconomic
concerns. While growth has slowed down significantly,
inflation remains well above the comfort zone of the
Reserve Bank. Against the backdrop of heightened global
uncertainty and domestic macroeconomic pressures, the
challenge for monetary policy is to maintain its
commitment to firmly containing inflation and lowering
inflation expectations. At the same time, monetary policy
will remain sensitive to growth risks. I also want to
reiterate that the Reserve Bank stands ready to respond to
external shocks that may arise from the turbulent global
environment.
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 Concepts
• Factors of Production
– Land, Labour, Capital
• Additional Measures
• Unemployment
• Twist
• Near Zero Rates
• SLR cut
• Pricing Power
• Supply constraints
• Trend Growth Rate
• Output Gap
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 Assignments
• What is the fiscal cliff?
– What measures can reduce the impact on growth
• When rates are already close to zero what
measures can a central bank employ to kick
start the economy?

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 Week 6 Agenda
• FOMC and RBI – Analysis of Central banks
statements
• Swaps Recap
• Assignments
• Internal Evaluation
• Global Markets
• Forwards
• Foreign Exchange Markets
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 Swaps - Quiz
• Define
• Graphically represent
• Advantages
• Applications
• Swap as a Hedge
• What are arbitrage trades in reference to Swaps
• A corporate with a long term fixed liability wants to re-price
at shorter intervals
• Swap Spreads
• What is Termination/ Cancellation
• Components of IRS Valuation
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 Week 6 Agenda
• FOMC and RBI – Analysis of Central banks
statements
• Swaps Recap
• Assignments
• Internal Evaluation
• Global Markets
• Forwards
• Foreign Exchange Markets
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 Feedback on Assignments
– Simply a dump of numbers has been given
– Units are missing
– 2 Decimals are enough
– Insight ?
– Some are more than 2 weeks late
– Suggestions for improving NSE MIBOR collation
are largely absent

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 Week 6 Agenda
• FOMC and RBI – Analysis of Central banks
statements
• Swaps Recap
• Assignments
• Internal Evaluation
• Global Markets
• Forwards
• Foreign Exchange Markets
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 Internal Evaluation
• Describe the Key objectives of a bank treasury
• Explain the various Sources and Deployment
of Liquidity for a bank
• Describe 2 instruments from Money Markets
OR Debt Markets, Describe the key
characteristics and main users of each
• Of the 10 most liquid currencies traded
mention any 4 currencies

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 Treasury – Key Objectives
• Maintain Statutory balances on an ongoing basis
• Undertake and Risk manage client positions
• Assess, advise on and manage the risks from non treasury
positions
• Maximise deployments of cash surpluses
• Fund the balance sheet most effectively
• To spot and undertake trading opportunities
– Entailing market risk
– Arbitrage
• Monitor and operate within approved risk limits
• Operate transparently and introduce strong dealing processes

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 Liquidity Management in Banks
• Sources of Liquidity
– Cash in excess of CRR
• Deposits
• Interbank Call Money Borrowing
– SLR Investments in excess of SLR
• Outright sale
• Market Repo/ CBLO
• RBI LAF
– Swapping Dollar funds to INR
– Prime Non SLR investments
• Repo
• Outright Sale

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 Liquidity Management in Banks
• Sources of Liquidity
– Undrawn Lines (Refinance) from RBI or specialised
vehicles
• Export Credit Refinance – RBI – Exports portfolio
• Small Scale Unit – SIDBI – Small scale portfolio
• Agri Refinance – NABARD – Agri portfolio
• Home Loan Refinance – NHB – Mortgage portfolio
– Marginal Standing Faciltity
• Dip into SLR 1% at Repo Rate +1% on approval

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 Liquidity Management in Banks
• Deployment of Liquidity
– Call Lending
– Acquire short term SLR assets
• Outright
• Market Reverse Repo
• RBI Reverse Repo at 7%
– Acquire short term Non SLR investments
• CDs, CPs
• Loans
– Acquire Dollar Assets
– Repay outstanding Refinance

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Market Instruments - Money Markets
Clean
Lending
Repo
Lending
(Collateral)
Money
CD
Market

CP

T Bill

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 Debt Markets
Central
Governmen
t Bonds
State Govt
Corporate
Debt Bonds
Market
PSU Bonds

Financials

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 Market Instruments – FX Markets
• G7/ G10 FX Majors Desk
– These are the considered to be the 10 most liquid currencies in the world
1.  US Dollar (USD)
2.  Canadian Dollar (CAD)
3.  Japanese Yen (JPY)
4.  Australian Dollar (AUD)
5.  New Zealand Dollar (NZD)
6.  British Pound (GBP)
7.  Euro (EUR)
8.  Swiss Franc (CHF)
9.  Swedish Krona (SEK)
10.Norwegian Krone (NOK)
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 Internal Evaluation Contd
• Define Modified Duration of a bond, what is
the significance, give examples
– The modified duration of a bond is 5. For a 50bp
(0.50%) move UP in yield what would you expect
the price to change by? Why is there a difference
from the predicted change?

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 Fixed Income Securities
Modified Duration (Mod Duration)
• Modified duration follows the concept that
interest rates and bond prices move in
opposite directions
• This formula is used to determine the effect
that a 100-basis-point (1%) change in interest
rates will have on the price of a bond.

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 Internal Evaluation
• What are Passive strategies in Bond Portfolio
Management?
• Elaborate on any two.
OR
• What is the typical organization structure of a
bank treasury?
• Describe the activities of each department

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 Bond Portfolio Management
• Passive Strategies
– Buy and Hold
– Regular Income/ Accrual
– Spaced Maturity
– Front End / Back end Maturity
– Barbell
– Immunisation
– Dedication

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 Treasury – Organisation Structure
• To facilitate smooth handling on the various
market related operations from dealing to
settlement most treasuries are organised in 3
parts
– Front Office, Mid Office and Back Office
• Additionally there are several support functions
assisting the working of the above 3
– Legal and Compliance
– Finance and Accounting
– Risk Management and Reporting
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• What is a Primary Dealer, explain its various
functions
• OR
• What is the concept of an integrated treasury?
Explain the benefits with examples

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 Entities in the Markets
• Primary Dealers
– Underwriters of the Borrowing program
• Rs5.7 trillion for FY13
• 65% in H1 (Rs3.7trn)
– Market Makers in government securities
• Minimum turnover ratios
– Smooth conduct of secondary bond market
– Could be as a bank or as a stand-alone PD
– Other business permitted for stand-alone PDs
• Equity trading, Corporate Bonds
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 Integrated Treasury
Concept
• Traditionally forex and rupee treasury were separate
– Within rupee – money market, bonds separate
• Stat maintenance was a cost centre
• Co-location of different departments
• Common IT systems
• Common objectives across desks
• Funding/ Deployment across currencies
• Capture Arbitrage opportunities
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• Describe the Price Yield relationship of a bond.
Elaborate the reasons for the same and
graphically represent it.
OR
• Describe any 2 Capital Market instruments.
For a mature utility company what type of
instruments are considered appropriate

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 Fixed Income Securities
Bond Theorems
• Price is inversely related to Yield
• For the same change in yield the Fall in price is
less than rise in price
• Longer the maturity, higher the price sensitivity
• Lower the coupon, higher the price sensitivity
• Higher the frequency of coupon lower the price
sensitivity

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 Fixed Income Securities
Bond Theorems

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 Capital Markets
• Corporate Capital Structure
– Equity
• Capital, Reserves, Retained Earnings
• Common Equity (Shares)
– Hybrids
• Preference
• Convertible Debentures
– Optionally, Fully, Partly
– Borrowings
• Short term, Working Capital
• Medium Term
• Long Term
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 Week 6 Agenda
• FOMC and RBI – Analysis of Central banks
statements
• Swaps Recap
• Assignments
• Internal Evaluation
• Global Markets
• Forwards
• Foreign Exchange Markets
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 Global Markets
• Treasuries in modern banks are usually called
Global Markets
• The concept is develop skill sets which can be
replicated across geographies and asset classes to
optimise the banks resources
• Largely independent, insular and disconnected
markets of the 1980 slowly got integrated and
correlated
• Internationalising corporates, deregulating
economies hastened this process
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Key reforms with regard to Markets
• Market determined interest rates
• FDI and inward foreign investment liberalised
• Permission to raise foreign resources for Indian
Companies
• Permission to banks to deploy funds held in
overseas accounts –EEFC, FCNR
• Derivatives – Currency Options, Currency
Futures, Interest Rate Futures, Swaps,
Forwards
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Key reforms with regard to Markets
• LAF
• Overseas borrowings for banks allowed (25%
of Tier I
• Liberalised exchange rate regime
• Interbank borrowings exempt from SLR/ CRR

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 Week 6 Agenda
• FOMC and RBI – Analysis of Central banks
statements
• Swaps Recap
• Assignments
• Internal Evaluation
• Global Markets
• Forwards
• Foreign Exchange Markets
Arvind Sampath
 Forwards
• 3M T bill is 8%
• Rs 100 today will become Rs 102

• Rs 55 will become 55/100*102=56.1

• Rs 55 = 1$ say
• Hence in 3 months 1 dollar should be worth Rs56.1
• Forward Premium for 3 months should be Rs1.1 (less $
interest rate which is 0.25%)
• The forward premium should be determined by this
theory in open markets
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 Forwards
• However various other factors are at play in
the forwards market
– Demand and Supply
– View on $ in the near term
– Borrowing limits
– Deployment needs overseas for exporters
– Travel, remittances and their seasonality

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 Current Market
• 3M T bill: 8.25%
• 6M T bill: 8.25%
• 1 Y T bill: 8.06%

• Spot 55.85
• 3M Forward: 88/89
• 6M Forward: 173/175
• 12M Forward: 297/299
• What is the market implying?
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 Current Market
• Why are forwards lower than they need to be?
– Restriction on Borrowing limits
– Sharp Dollar Move in recent past hence good
chance of INR appreciation
– Exporters who are unhedged may sell exports
– RBI has taken measures to slow the weakening

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 Factors affecting Exchange Rates
• Monetary Policy – Money Market Rates
• Government Finances
• Inflation
• Trade Balance
• Current Account Balance
• Growth Story
• Currency Reserves
• External Debt
• Commodity Prices
• Political stability
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 Week 6 Agenda
• FOMC and RBI – Analysis of Central banks
statements
• Swaps Recap
• Assignments
• Internal Evaluation
• Global Markets
• Forwards, Foreign Exchange
• Risk Management
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 Risk Management
Has three pillars
• Risk Evaluation or Analysis
• Risk Measurement
• Risk Monitoring

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 Risk Management
Counterparty
Credit Risk
Industry

Financial Interest
Rates

Market Risk Liquidity

Risk
Operational
Currency
Risk

Political
Non Financial
Legal

Funding

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 Definition
• Risk means uncertainty of loss, or an unexpected
outcome
– Financial
– Non Financial
• Bank wide function
– Treasury
– Advances
– Retail
• Effective management needs a separate vertical
• Risk Mgt instruments may be housed in treasury
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 Financial Risks
• Credit Risk: Risk of Default or deterioration in
credit quality
– Counterparty Risk: Specific name deterioration,
management or product problems
– Industry Risk: General industry based adverse
developments, policy based problems
• Mitigation: Detailed appraisal, understanding of
the business
– Rating
– Risk based pricing
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 Financial Risks
• Mitigation
– Credit enhancement
– Asset cover, Collateral
– Limit setting and monitoring
• Industry, location, group, on and off balance sheet
– Regular client discussions and visits
– Diversification

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 Financial Risks
• Market Risk: Risk of Market value on books or
fair value adversely changing.
• Due to
– Interest Rates
• Measures: PVBP, NII
– Liquidity
• Liquid Assets
– Currency
• Hedge ratios, volatility

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• Mitigation
– Duration management
– Limits, Monitoring
• Multiple limits
– VaR: Maximum possible loss in a specified period,
given historic data
• Additive across asset classes
– Short term liquid assets ratio
– Change in funding terms
– Repo for non saleable assets
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 Examples – What are the risks?
• Customer wants to cash a $10000 cheque
– Currency
• Market Cover
• Customer wants to deposit a $10000 cheque in a 1 year FD
– Currency, Interest Rate
• Market Cover, Derivatives
• Customer books a forward contract for $5m
– Currency
• Market Cover
• Customer pre closes an 5 year FD for Rs1 lac
– Liquidity, Interest Rate
• Market Cover, Derivatives

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 Examples
• Customer wants to cash a $10000 cheque in
Rupees
• Dealer forgets to enter this deal in system
– Operational Risk, Currency Risk
• Reflect Correct position, Loss recognised
• Corporate has bought (booked) a 1 year forward
cover at Rs60, INR appreciates to Rs 50 in spot
– Market Risk, Credit Risk
• Market Cover, Limits monitoring, Margin

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 Examples
• Corporate has undertaken currency
derivatives to reduce cost of liabilities
– Market Risk, Credit Risk
• Market Cover, Limit monitoring, Hedging policy
• Bank deals in Interest Rate Swap with a
subsidiary of a Sri Lankan corporate
– Market Risk, Country (Political) Risk
• Market Cover, Limits monitoring by geography

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 Risk Mgt in Treasury
• Risk analysis is particularly important:
– Profits are made from Market movements hence
market risk is inherent
• This is not the case in Advance, Retail since there is no
immediately observable market
– Hedging/ Derisking of non treasury positions is
possible
• Eg: Bulk of loans is at Base Rate plus hence floating
• Eg: PVBP of SLR portfolio can be hedged
• Eg: Concentration in Real Estate could be reduced by
buying CDS of a real estate index
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 Risk Mgt in Treasury
• Leverage is high in the Treasury business
– RWA is low and hence buffer of capital allocated
to Treasury is low
– Market movements can cause a larger erosion of
this allocated capital as compared to other
business segments

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 Risk Mgt in Treasury
• Delegated Authorities (DA) are to individuals
– No committee decisions
– High dependence on individual’s judgment

• Market movements are rapid unlike in other

business segments
– Transactions are irrevocable
– PnL volatility is high
– Unexpected/ Unrelated events can impact positions
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 Operational Risk
• Arises out of inadequate internal controls,
human error or management failure
– Weak process, inadequate checks
– Non compliance with laid down procedures
– Fraudulent practices
– Technological inadequacies
• Can be measured accurately only post facto
– Past behavior can be modeled
• Probability of occurrence, magnitude
– A reserve or limit must be created for this risk
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 Operational Risk
Mitigation
• Design Strong process
• Clear and repeated communication
• Open, transparent and auditable work flows
• Clear delegation of powers, no exceptions
• Manuals, Policy
• Scalable IT systems, backup
• Standardized documentation
• Supporting papers for every deal
• Maintain Linear workflow
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 RBI guidance
• Detailed reports to RBI are sent regularly
(fortnightly, monthly) on various parameters
– Asset Liability mismatch
– PVBP
– Funding sources
• Call Money
• Core deposits
• Duration of investments, liabilities
• Converted forex funds
• ICG guidelines review
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 ALCO
• One of the banks most powerful groups in a bank
• An Independent committee including
– CEO, CFO, Treasurer, Economist, Business Heads
• Key decisions, approvals are taken
• Meets atleast once a month
• Minutes are submitted to Audit/ RBI
• Investment policy is reviewed twice a year
• Pricing of deposits/ assets
• Compliance with RBI guidelines
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 ALCO
Internal Control Guidelines
• Segregation of duties
• Any fails/ OL to be reported
• Every deal backed by documentation
• Audit/ Inspection of Treasury
• Panel of brokers is reviewed annually

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 New Products
• Should be authorised by a Board level committee
• Credit limits, Risk Mgt sign off
• Compliance clearance
• Product Note
– Highlight specific risks
– Detailed work flow
• Accounting clearance
• OR signoff
• IT and systems availability
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 Other Risks
• Country Risk
– Overriding risk of a country’s policies preventing a
corporate from discharging its regular liabilities
– Events within a foreign country weakening the
credit of a corporate
– Manifests as counterparty risk
– Assign and review limits, Internal Rating
– Stress tests, Strategy for every country/ geography

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 Other Risks
• Legal Risk
– Standardized documentation
– For each deal
– Acknowledged, countersigned
– Authorized signatories
– ISDA documentation
• Master
• Schedule
• Deal Confirmation
– CCIL has reduced this risk considerably
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 Risk Mgt – Sum up
• Volatile Markets
• Heavy volume of business
• Individual decision making
• Irrevocable deals

• Strong policy, processes

• Stop Loss adherence
• Compliance to internal and external regulation
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 Mark to Market
• Revaluation of positions
• Objective: To reflect the correct market value of the
investment book
• Estimate the performance of trading
• Estimate the risk inherent in investment book by back
testing
– VaR
– PVBP
– Credit Risk modelling
• Management, Auditors, Shareholders, Depositors
• This desk should be independent of the business
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 Mark to Market
• Money Market positions
• Debt Market positions
• Forex market positions
• Equity shares
• Structured positions
– Advances/ Retail are usually accrual books and
add to NIM
– Fees

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 Mark to Market
• Money Market positions
• Portfolio
– Rs 100 cr of T bill maturity 30/9/12
– Rs 25 cr of P1+ CP maturing 30/12/12
– Rs 50 cr of bank CD maturing 31/3/13
– Rs 500 cr in call money, CBLO, Repo

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 MTM Methodology
• Straight Line Method
– Buy and Hold
– Liquidating can bring a valuation difference
• End of Day rates
– Collection
– Checking
– Independent verification
– Interpolation
• Linear
• Cubic Spline
– Replacement Value
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• Portfolio
– Rs 100 cr of T bill maturity 30/9/12, bought at
9.5%
– Rs 25 cr of P1+ CP maturing 30/12/12 purchased
at 10%
– Rs 50 cr of bank CD maturing 31/3/13 at 9.85%
– Rs 500 cr in call money, CBLO, Repo

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 Data required for MTM
• Day-end curve from market
• O/N 8.1%
• 1M 8.2%
• 3M 8.25%
• 6M 8.2%
• 1Y 8.05%
• Add dates for the above curve
• Use observed trades if curve unavailable to construct
one
• Use spreads if data unavailable for CP, CD
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• Interpolate to find MTM yields for the
portfolio
• Estimate the prices from the yields
• Value to portfolio on the prices
• Estimate PBT or MTM Gain/ Loss
• Backtest

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 Adjustments
• The valuation marks can be adjusted
downward (conservatively) to account for
liquidity risk
• Historical spreads can be used if daily trades/
data are not available
– Eg INBMK swaps
– Back testing is very important
• Auditor sing off on valuation methodology is
key
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 Debt Markets
• Portfolio
• Rs100 cr of 8.15% 2021 bought at 100
• Rs 25 cr of 9.15% 2024 bought at 105
• Rs 50 cr of 8.19% 2020 bought at 98
• Rs 50 cr of 8.70% WB State Loan 2021 at par
• Rs 50 cr of 10% RIL 2017, par
• RS 100 cr of 9.5% HDFC 2014, at 99

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• Liquid bonds – use end of day market prices
– Weighted average
• Illiquid bonds – interpolate the YTM from
plotting the yield curve
– For each credit rating eg AAA, AA+…
• Estimate the price
• Value the illiquid positions
• LOCOM for thinly traded

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 IRS positions
• Portfolio
• Rs 150 cr Receive fixed against NSE MIBOR
maturing 31/1/2017
• Rs 100 cr Pay fixed against 6m MIFOR
maturing 30/4/2014
• Rs 50 cr Pay fixed against 1 Y INBMK maturing
02/09/2022

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 MTM - Swaps
• Plot end of day curves
• Use traded data if benchmark curve
unavailable
• Estimate the yields for the swaps on the book
• Value as a fresh swap from today to maturity
• Estimate the PnL
• PVBP * change in yields will approximate
• Accrual treated separately
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 Foreign Exchange positions
• FEDAI guidelines
• Balance in Mirror account – Spot Rate
• Spot and bills within 2 days – Spot Rate
• Liquid currencies use the FEDAI end of day curve
or RBI valuation
• Forwards – use interpolation
• Gains from above go to PnL statement
• Structured trades need to be broken up into
their basic blocks and valued
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 Assignment
• Why should investment books be Marked to Market?
• You have done a 5 year Currency Swap with a
Thailand Based Corporate where you are paying fixed
rate 9% (INR) and receiving $LIBOR+400. To hedge
the PVBP you purchased a 5 year Corporate Bond
– What are the risks you are running?
– Write a note (about 75 words) on how this position and
the hedge will be valued. Which curves will be used and
what adjustments may be needed

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 Assignment
A bank has an active treasury dealing in Bonds,
Swaps and Currency. Due to excessive volume
the deal input system crashed and could not
capture all the trades of the day. Post market
closing RBI reduced interest rates and reduced
NOOPL of banks by 50%.
• As a Risk Management person describe the
various risks the bank is running, how do you
estimate the worst case and suggest a solution
(150 words)
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 Assignment
• Swaps
• Bank A has an SLR portfolio of Rs 1000cr in
securities maturing between 5 and 10 years.
Its funding is mainly through 3 month term
deposits
• What swap structure would you suggest.
Describe the transaction. Cover – benchmark,
amount, deal slip, graphically represent
• As market maker what would do next
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