CAIIB BFM Unit 24 - Treasury Products

1.  In Foreign Exchange market free currencies can be bought and sold readily.

2.  Free Currencies belong to those countries whose markets are highly developed and where exchange controls are practically dispensed with.

3.  Foreign Exchange market is most transparent & it is virtual market.

4.  Foreign Exchange market may be called near perfect with an efficient price discovery system.

5.  Spot settlement takes place two working days from the trade date i.e. on third day.

6.  Customers expecting Foreign Currency transactions cover their risk by entering forward contracts.

7.  Treasury enters into Forward Contract for making profits out of price movements.

8.  Forward exchange rates are arrived at on the basis of interest rates differentials of two currencies.
9.  A combination of Spot and Forward transactions is called Swap.

10.  The Swap route is used extensively to convert cash flows from one currency to another currency.

11.  Inter bank loans, Short term investments and  Nostro accounts are the avenues for investment of Forex surpluses.

12.  Nostro accounts are current accounts maintained in Foreign Currency by the banks with their correspondent banks in the home currency of the country.

13.  Balance held in Nostro accounts do not earn any interest.

14.  Rediscounting of Foreign Bills is an inter bank advance.

15.  RBI has allowed banks to include rediscounting of bills in their credit portfolio

16.  Money market refers to raising and developing short term resources.

17.  Inter bank market is subdivided into Call Money, Notice Money & Term Money.

18.  Call Money refers to overnight placement.

19.  Notice Money refers to placement beyond overnight for periods not exceeding 14 days.

20.  Term Money refers placement beyond 14 days but not exceeding one year.

21.  RBI pays interest on CRR balance in excess of 3% at Reverse Repo Rate.

22.  Inter bank market carries lowest risk next to Sovereign risk.

23.  The interest on treasury bills is by way of discount i.e. Bills are priced below face value, this is known as implicit yielding.

24.  Each issue of 91 days T-bills is for Rs.500 Crores and auction is conducted on Weekly basis I.e. on every Wednesday.

25.  Each issue of 364 days T-bills is Rs.1000 Crores and auction is conducted on Fortnightly basis i.e. on alternate Wednesday.

26.  The payment of T-bills is made and received through Clearing Corporation of India Limited ( CCIL )

27.  Commercial paper is short term debt market paper.

28.  The Commercial Paper issuing company should have minimum P2 credit rating.

29.  Banks can invest in Commercial Paper only if it is issued in D-mat form.

30.  Certificate of Deposit attracts stamp duty.

31.  Repo is used for lending and borrowing money market funds.

32.  Repo refers to sale of securities with a commitment to repurchase the same securities at a later date.

33.  Presently only Govt. securities are being dealt with under Repo transaction.

34.  Repo is used extensively by RBI as an instrument to control liquidity in the inter bank market.

35.  Infusion of liquidity is effected through lending to banks under Repo transactions.

36.  Absorption of liquidity is done by accepting deposits from banks known as Reverse Repo.

37.  Banks may submit their bids to RBI either for Repo or for Reverse Repo.

38.  The Repo would set upper rate of interest and Reverse Repo would set floor for the money market.

39.  Investment business is composed of buying and selling products available in securities market.

40.  To satisfy SLR banks can also invest in priority sector bonds of SDBI & NABARD. 

41.  State Government also issue State Development Bonds through RBI.

42.  Corporate Debt papers includes medium and long term bonds & debentures issued by corporates and Financial Institutions.

43.  Debentures and bonds are debt instruments issued by corporate bodies with or without security.

44.  In India debentures are issued by corporates in private sector and bonds are issued by institutions in Public Sector.

45.  Debentures are governed by relevant company law and transferable only by registration.  But bonds are negotiable instruments governed by law of contracts.

46.  If the bond holders are given an option to convert the debt into equity on a fixed date or during a fixed period , these bonds are called Convertible bonds.

47.  Banks are permitted to invest in equities subject to a ceiling presently 5% of its total assets.

48.  Foreign Institutional Investors are now allowed to invest in debt market subject to an overall ceiling currently USD 1.75 Billion.

49.  Index Futures, Index Options, Stock futures and Stock Options etc. are the Derivative products recently introduce.

50.  The Derivative Products are highly popular for Risk Management as well as for speculation.

51.  Banks are also permitted to borrow or invest in overseas markets with in a ceiling subject to guidelines issued by RBI presently 25% of Tier – I capital or minimum USD 10 Million.

52.  The treasury operates in exchange market, Money market and Securities market.

53.  Foreign Exchange transaction includes Spot, Forward and Swap trades.

54.  Money market is used for deployment of surplus funds and also to raise short term funds to bridge gaps in the cash flow of bank.

55.  Money market products include T-bills, Commercial paper, Certificate of Deposit and Repo.

56.  Under EEFC exporters are allowed to hold a portion of the export proceeds in current account with the bank.

57.  GILTS are securities issued by Government which do not have any risk.

58.  SGL accounts are maintained by Public Debt Office of RBI in electronic form.

59.  FCNR deposit is denominated in four major currencies maintained by NRIs.