CAIIB BFM Unit 23 - Treasury Management

CAIIB BFM Unit 23 - Treasury Management (Year: 2019)

1.  Fund management has been the primary activity of treasury, but treasury is also responsible for Risk Management & plays an active part in ALM.

2.  D-mat accounts are maintained by depository participants to hold securities in electronic form.

3.  In present scenario treasury function is liquidity management and it is considered as a service center.

4.  From an organizational point of view treasury was considered as a service center but due to economic reforms & deregulation of markets treasury has evolved as a profit center.

5.  Treasury connects core activity of the bank with the financial markets.

6.  Investment in securities & Foreign Exchange business are part of integrated treasury. 

7.  Integrated treasury refers to integration of money market, Securities market and Foreign Exchange operations.

8.  Banks have been allowed large limits in proportion of their net worth for overseas borrowings and investment.

9.  Banks can also source funds in global markets and Swap the funds into domestic currency or vice versa.

10.  The treasury’s transactions with customers is known as merchant business.

11.  The treasury encompasses funds management, Investment and Trading in a multy currency environment.

12.  Globalization refers to integration between domestic and global markets.

13.  RBI has been progressively relaxing the Exchange Controls.

14.  The Exchange Control Department of RBI has been renamed as Foreign Exchange Department with effect from January 2004.

15.  Though treasury trades with narrow spreads, the profits are generated due to  high volume of business.

16.  Foreign currency position at the end of the day is known as open position.

17.  Open position is also called Proprietary position or Trading position.

18.  Treasury sells Foreign Exchange services, various risk management products & structured loans to corporates.
19.  Forward Rate Agreement (FRA) is entered to fix interest rates in future.

20.  SWAP is offered to convert one currency into another currency.

21.  Allocation of costs to various departments or branches of the bank on a rational basis is called transfer pricing.

22.  The treasury functions with a degree of autonomy and headed by senior management person.

23.  The treasury may be divided into three main divisions 1) Dealing room 2) Back office and 3) Middle office.

24.  Securities market is divided into two parts, primary & secondary markets.

25.  The security dealers deals only with secondary market.

26.  The back office is responsible for verification & settlement of the deals concluded by the dealers.

27.  Middle office monitors exposure limits and stop loss limits of treasury and reports to the management on key parameters of performance.

28.  Minimum marketable investment is Rs. 5.00 Crores.



1.  The driving force of integrated treasury are:
A) Integrated cash flow management B) Interest arbitrage C) Investment opportunities D) Risk Management.. 

2.  The functions of Integrated Treasury are:

    A) Meeting Reserve requirements B) Efficient Merchant services C) Global cash management D) Optimizing profit by exploiting market opportunities in Forex market, Money market and Securities market E) Risk management F) Assisting bank management in ALM.

3)  The immediate impact of globalization is three fold A) Interest rate B) New institutional structure C) Derivatives were allowed.

4)  RBI is allowing banks to borrow and invest through their overseas correspondents, in foreign currency upto 25% of their Tier – I capital or USD 10Million which amounts higher.

5)  Treasury products have become more attractive for two reasons  1) Treasury operations are almost free of credit risk and require very little capital allocation  and 2) Operation coats are low as compared to branching banking.

6.  Treasury generates profits from under noted businesses.

  1. Conventional  A) Foreign exchange business and B) Money market deals.
  2. Investment activities e.g. SLR, non – SLR & investment in Subsidiaries.
  3. Interest Arbitrage.
  4. Trading is a speculative activity, where profits arise out of favorable price movements during the interval between buying and selling.


7.  ARBITRAGE:  is the benefit accruing to traders, who play in different markets simultaneously.

8. DERIVATIVES are financial contracts to buy or sell or to exchange a cash flow in any manner at a future date, the price of which is based on market price of an underlying assets which may be financial or a real asset with or with out an obligation to exercise the contract.

9.  EMERGING MARKET COUNTRIES  are countries with a fast developing economy, which are largely market driven.

10.  D-MAT ACCOUNTS are maintained by depository participants to hold securities in electronic form, so that transfer of securities can be affected by debit or credit to the respective account holders without any physical document.