Treasury Management Ppt

AgendaTreasury management; concepts and functions; instruments in thetreasury market; development of new financial products; controland supervision of Treasury management; linkage of domesticoperations with foreign operations.

Asset-liability management; Interest rate risk; interest rate futures;stock options; debt instruments; bond portfolio strategy; riskcontrol and hedging instruments.

Investments – Treasury bills – Money markets instruments suchas CDs, CPs, IBPs; Securitisation and Forfaiting; Refinance andrediscounting facilities.

What is Treasury Management

A place where stores of treasures are kept; the place of deposit, care, and disbursement of collected funds

Collects funds and disburses money.Managing Funds through proper allocationResponsibilities fall under the scope of CFOThe CFO’s responsibilities include capital

management, risk management, strategic planning, investor relations and financial reporting.

The Manager

Resource Decisions

Information Decisions

Financing Decisions

Investment Decisions

Human ResourcesDecisions

Managing an entity’s Resources

Cash ManagementInventory ManagementWorking Capital ManagementInvestment in Human CapitalLong-term AssetsAccounts Receivable

Economics of InformationDatabase ManagementData ModelingIS Planning & Development

Debt vs. Tax FinancingCost ofCapital

Discount Rate

Value Creation

FinancialMarkets

Cash Inflows

OperatingDecisions

Recruitment, SelectionTraining, ProductivityPerformance AppraisalCompensationUnions & Labor Relations

Life cycle effects,Business cycle, public events,etc.

Corporate Story4

Financial supply chain management

Process flowCredit management

Issue invoice

Electronic bill presentation

Forecast cash

Cash & liquidity management

Finance working capital

Dispute management

Resolve dispute

Collect Cash

Treasury & Risk management

In-house cash management

Settle & pay

Collections management

Check credit worthiness

worhiness

Reconcile

Key areas of Public Cash Management

OrganizationCollection and disbursement of fundsNetting of interagency paymentsInvestment of excess fundsOptimal level of cash balancesCash planning and budgetingBank relations

Integrated Treasury Department

Domestic Treasury

Operations

• Make investment in their own account

• SLR, CRR, CP, CD, TB, Bonds & Debentures, Equities and various other derivaties

Forex Treasury Operations

• Conduct operation on behalf of clients

• Spot and forward markets, foreign exchange swap markets , FCNR and Nostro Account.

Integrated Treasury

Integrated Treasury refers to integration of money market, securities market and foreign exchange operations.

Objectivesa. Meeting reserve requirementsb. Provision for adequate and timely liquidityc. Global cash managementd. Optimizing profit by exploiting market opportunities in forex

market, money market and securities markete. Risk managementf. Efficient merchant servicesg. Assisting bank management in ALM

Structure of Treasury Department

Function Responsible for

Front office Dealing

Mid-Office Risk management, accounting and management information

Back office Confirmations, settlement and reconciliation

Dealing

MIS

settlement

Bank treasury departmentsMoney market desk

Foreign exchange or FX desk

Equities Desk

Derivatives Desk

Treasury Strategies, Inc. www.TreasuryStrategies.com

Debt &InvestmentManagement

PerformanceMeasurement

TreasuryOperations

RiskManagement

Treasury

Management

Credit

ExposureManagement

ValueatRisk

Simulation

CashPosition

TransactionManagement

BRM

SystemInterfaces

BestPractices

Benchmarks

OtherMetrics

LongRangeGoals

Liquidity

Long TermInvest

DebtIssuance

SystemInterfaces

Global /Domestic

Derivatives/Currencies

G/L/ERP Interfaces

Simple/Esoteric

Workstation Functionality

Treasury

Functions of Treasury Management

Reserve Management & InvestmentCash ManagementLiquidity & Funds ManagementRisk ManagementAsset liability managementTransfer PricingDerivative productsArbitrageInsurance Management

Reserve Management & InvestmentMeeting CRR/SLR obligations

a) CRR – 6%

b) SLR – 25% Appropriate mix of investment portfolio

Cash ManagementControl & care of the cash assets and liabilities of the

organization.Selection of investment products, investment brokers,

methods of borrowing, cash management information system and the development and compliance with cash and investment policy and processes.

50000000 1002 504 339.3333333 258 210

Order Quantity (Z)

Cost ($)

Z*

Total Costs

Holding Costs: (Z/2)*r

Order Costs:(M/Z)*TC

Optimal Cash Balance via Baumol Model

Z*Z*= [(2M*TC)/r]

M = $10,000M = $10,000 r = .01% .0001r = .01% .0001TC = $20TC = $20

Z = $63,246Z = $63,246

Investment of excess funds

Liquidity & Funds ManagementAnalysis of cash flow arising out of asset liability transactionFund various asset of balance sheetPolicy inputs to strategic planning and yield expected in

credit and investment.

Risk ManagementChanges in Interest ratesIncreasing NPA’sIncreasing level of disintermediationIt includes customer credit management, vendor/contractor

financial analysis, liability claims management, business disaster recovery, and employee benefits program risk.

Transfer PricingTransfer of funds to related party.Assist in enhancing profits Performance evaluation

Derivative ProductsDevelop Interest Rate Swap and other cross currency

derivative productsHedge bank’s own exposure and also sell to customers

ArbitrageRisk less profits

Insurance ManagementInsurance Management is the process of negotiation of

insurance policies to mitigate the risks that the organization does not want to assume.

Accounts Receivable ManagementAccounts Receivable Management includes the control

of cash receipt systems within the organization.

Accounts Payable ManagementAccounts Payable Management includes the control of

the cash disbursement process.

Asset Liability Management

Asset Management

How Liquid are assets of banks

Liability Management

How easily banks can generate loans from

market

In Terms of : Maturities & interest rate sensitivitiesTo Minimize: Interest rate risk & Liquidity Risk

ALMALM is an integral part of the financial

management process of a bank.ALM is concerned with strategic balance

sheet management involving risks caused by changes in interest rate, exchange rates and liquidity position of the bank.

ALM can be termed as risk management technique designed to earn an adequate return while maintaining a comfortable surplus of assets beyond liabilities.

Treasurers 10 point check list 1. "Cash is King" when liquidity is scarce, so focus on the fundamentals of

working capital and cash flow optimisation: get paid; know you've been paid; optimise payments; make surplus cash work harder

2. Focus on operational efficiencies wherever possible, such as the centralisation of processes and information, in addition to treasury, payments and collections

3. Check regularly for additional security, efficiency and portability opportunities through SWIFT

4. Closely monitor and manage FX exposures 5. Monitor counterparty risk by checking cash positions, credit default swaps and

establishing counterparty limits 6. Ensure the financial supply chain does not become too vulnerable by getting

the fundamentals right, such as avoiding late payment to suppliers 7. Begin preparations now to exploit the benefits of SEPA Direct Debits and the

Payments Service Directive (PSD) 8. Keep up to date with IFRS changes, such as in Hedge Accounting, and lobby

the authorities where proposed changes would be detrimental to the business 9. Consider opportunities for improving cash and treasury management in

countries of rapid growth, such as in Asia and the Gulf region, but retain a systematic approach to risk and ensure the visibility of cash flow

10. Focus on the company's balance sheet and P&L when making decisions, as well as when assessing treasury results

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TechnologyCurrent State of Treasury and Technology:

Most treasurers use treasury technology to support their treasury functionsBank-provided softwareThird party-provided software

Treasury technology has improved liquidity and risk managementBetter and more timely access to informationImproved controls over transaction processing


Cash ForecastingBenefits of web-enabled technology applied

to cash forecasting:Easier access to a reporting mechanism from

any corporate locationAutomated information capture from other

data sourcesApplication of automation to establish

historical perspective and identify unusual cash flows

Global implementationStandardized approach to netting operationMore limited and manageable training

requirements


ASP Solutions

Subscribers

Subscribers

Subscribers

Custody

Bank 3

Bank 2

Bank 1

Broker/Dealer

ASPService

InformationExchange

Internet


E-CommerceDifferent treasury challenges and opportunities,

depending on the industry and market segmentAlternative access and delivery channel for

commercial banksBusiness-to-consumer (B2C) transactions - on the fast

track!Colleges and universities are involved in successful e-

commerce programsGovernment is facing challenges dealing with sales tax

revenue collectionsBrokerage industry, on-line trading hot, but trades are

settled with conventional payment First major wave of treasury information and software

products becoming Web-enabled


E-CommerceCorporate Treasury Opportunities

New investment/borrowing sourcesOther, internet-powered financial productsDramatically enhanced information flowsCost and efficiency improvementsTreasury role in the development of global

e-commerce venturesCorporate Treasury Challenges

Treasury management issuesPayment system issuesInformation management issuesRisk management issues


E-CommerceTreasury Management Issues

Change and development in working capital and credit components

Positioning treasury strategically in a global e-commerce environment

New treasury skills requiredRegional treasury management requirementsCross-border vs. intra-countryOrganizational limitations

Treasury Management Services

Improve your receivable collection processes Increase control and management of your disbursements Enhance your level of timely and comprehensive

information controls Maximize your liquidity management Reduce the potential for fraud and possible monetary

losses to your company Provide the most advanced information technology tools

available

Receivables Management

Cash ConcentrationDirect Debit

ACH Debit

Wholesale Lockbox

Receivables Management

Current day detail reporting

Imaged remittance documents

Invoice capture detail

Current day detail reporting

Imaged remittance documents

Invoice capture detail

Retail LockboxReceivables Management

Same day data transmissions

Imaging available of check, coupon or both

Searchable CD-ROM archive of processed detail

Same day data transmissions

Imaging available of check, coupon or both

Searchable CD-ROM archive of processed detail

Disbursement ManagementControlled Disbursement

PorterHemphillHoney Grove

Account ReconciliationFull ARPPartial ARPDeposit reconciliationDirect transmission of paid item filesStatement and check imaging on CD-ROM

Disbursement ManagementACH

Easy to complete transaction forms

Wide variety of payment types including EDI 820

Allows import of transaction detail from other applications

Easy to complete transaction forms

Wide variety of payment types including EDI 820

Allows import of transaction detail from other applications

Positive Pay AdvantageDisbursement Management

A “Relationship Saver”90 Day History of Paid Check Imagese-Mail Notification when Items are Ready for

ReviewDynamic ReportsExport Data to a comma delimited file (CSV)

for further CustomizationManage your Business with our Administration

Module

SAP Treasury and Risk Management (TRM)

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Global Best Practices in Risk and Treasury Management

A comprehensive framework – 9 part framework

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Risk Approach

41


Best Practices Institutions view Risk Management not from the perspective of compliance or control but from the perspective of value creation.

Best practice institutions take a proactive, not a reactive approach to Risk Management as part of Balance Sheet Management.

Best practice institutions have a clear articulation of the amount of risk to be taken. They are quantified, pre-specified, and measurable.

Best practice institutions have a balance sheet management process that encompasses on-balance sheet, off-balance sheet, and behind the balance sheet (quality of Risk Management infrastructure) items.

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Best practice institutions manage risk, not eliminate them.

The watchwords are:

Risk by choice, not by chance

Exposure by choice, not by chance

Clean bet, not confused bet

Bet with your head, not over your head

Best practice institutions control both the volatility of Net

Interest Income (NII), a short-term objective, and Economic

Value of Portfolio Equity (EVPE), a long-term objective.

A change in the EVPE is a leading indicator of the quality of the

future income statement.



Strategic Process

Best practice institutions have Risk Management

function acting as a catalyst for the formulation of

strategies. They ensure that there is a fit between

different strategies. They include:

• On-Balance Sheet Business Strategies

• On-Balance Sheet Investment/Funding Strategies

• Off-Balance Sheet Strategies

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Derivatives

Best practice institutions view derivatives as a double-edged

sword - they are not an end but a potential means to

accomplishing a strategic objective.

Best Practices institutions primary emphasis is on

Strategies for Exposure Reduction and not on techniques

for Noise Reduction.

Best practice institutions follow simple, easy-to-understand

derivatives strategies for their Risk Management; in

particular, they avoid exotic products/leveraged structures.

The watchword is “ Keep It Simple, Smart ".



Analytical Framework

Best practice institutions use an eclectic mix of

analytical techniques such as gap analysis, simulation,

duration, and value at risk depending on the structure

of the balance sheet and target variable being

measured.

No single technique is regarded as better than the

others by best practice institutions. They view these

techniques as complementary diagnostic tools.



Information Reporting Framework

Best practice institutions share Risk Management

information among employees at right frequency and at

the right level of detail. They ensure that the amount/type

of information received is appropriate/necessary for the

recipients' task.

An appropriate balance between information overload and

the dearth of information is maintained.



Control Framework

Best Practice institutions ensure that the Risk

Management limits are articulated to place a "ring

fence" around operating managers rather than tying

their hands with rigid limits. They strive for a judicious

balance between "tight controls" and "loose controls".

A successful treasury function has the same attributes as any other function within the organization that is considered successful. These qualities are:

• Teamwork • Respect of Organization • Forward Thinking • Global Thinking • Technologically Advanced • Customer Focused • Finance/Accounting Knowledge • Legal Knowledge • Reliability


The Future of the Treasury FunctionTreasury organizations will continue to shrink

Increased use of rule based decision makingIncreased use of outsourcing

Domestic treasury functions are being diffused through corporate organizationsShift to CFO invites new competitors to the tableMore points of contact for traditional business

developmentGlobal treasury functions, on the other hand, are

being centralizedSmall business treasurers more sophisticated about

treasury management products and services


The Future of the Treasury Function Success Factors - Corporate Treasury

Treasury must continue to support corporate strategy

Impact on corporate profitabilityDisciplined focus on core competenciesAccess to information versus dataCorrect employee skill set mixDeveloping an e-commerce approach that

fitsSimpler and easier execution of treasury

managementFocus on financial strategies and policies


The Future of the Treasury Function Success Factors - Financial Service Providers

Banks must use CRM and data mining to know and serve clients in increasingly customized ways

Banks must find a new balance between client acquisition and client retention efforts

Treasury management banks must be creative in providing value beyond pure payment processing

Treasury management banks must develop a global perspective on services and delivery

Treasury management banks must learn to operate in “internet” time


Treasury Outsourcing

Review andTest Disaster

RecoveryPlan

Assist as Bus Go up on New

Services Advisor, source of info & feedback on New Banks &

Services

Train Backup forVacations, etc.

Develop and Maintain Complete

ProceduralDocumentation

BankAccount Admin;

SignatoryTracking

Monitor Balances &

Service Charges;Troubleshoot

GetInvolved in BU

Service ProblemsAccording to

Decision RulesAdvisor

in Updating Banks & AccountStructure Due toAcquisition, etc.

Assess BankService, Periodic

QualityFeedback to

Customer/Bank

HistoricalReporting andTrend Analysis

PreparePeriodic CashManagement

Reports

OutsourcerPeriodic Activities

Treasury Management Ppt

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Transcript of Treasury Management Ppt