MF0016-TREASURY MANAGEMENT

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ASSIGNMENT

DRIVE FALL	2013
PROGRAM	MBADS – (SEM 4/SEM 6) / MBAN2 / MBAFLEX – (SEM 4) / PGDFMN – (SEM 2)
SUBJECT CODE & NAME	MF0016-TREASURY MANAGEMENT
SEMESTER	4
BK ID	B1814
CREDITS	4
MARKS	60

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

Q.1 Consider you are the chief financial officer of a software company. How would you oversee the company’s Treasury function? Discuss how you formulate the treasury policy.

Ans : The CFO's job is a very complex one. We have only scratched the surface of the many things this executive is responsible for. One thing is certain: a great CFO will usually differ from a good CFO by the way that he or she is able to project the long-term financial picture of the company and by how the company thrives based on his or her analyses. If i am at the position of CFO i will have responsibility towards maintenance of the treasury and there will be a well defined treasury policy .

Treasury functions :

Q. 2 The interest rate offered on Certificate of Deposits varies from bank to bank. Refer some of the public sector and private sector banks and analyse the factors affecting the interest rates.

Ans : Certificate of Deposits  :

A certificate of deposit (CD) is a time deposit, a financial product commonly sold in the United States by banks, thrift institutions, and credit unions.

CDs are similar to savings accounts in that they are insured and thus virtually risk free; they are "money in the bank". CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for banks and by the National Credit Union Administration (NCUA) for credit unions. They are different from savings accounts in that the CD has a specific, fixed term (often monthly, three months, six months, or one to five years), and, usually, a fixed interest rate.

Q.3 Explain in detail the process incorporated by any financial services company that operates in commodity market transactions. Classify the risks associated.

Ans : Transaction process in Commodity market by a financial service :

Step 1:  Buyer sends a Letter of Intent (LOI) to the Seller’s Mandate adress                                                               

Step 2:                  Seller produces a corporate offer to the Buyer with details for the commodity transaction.         

Step 3:  Buyer issues an Irrevocable Corporate Purchase Order (ICPO) or other proof of funds for amount specified in LOI. 

                                               

Step 4:  Upon receipt of the POF, the Seller will issue a draft

Q.4 Explain the different types of liquidity risks. Explain the framework for measuring and managing the liquidity risks.

Ans : Different types of liquidity risks :

Liquidity risk is divided into two types: funding liquidity risk (aka cash-flow risk) and market liquidity risk (aka asset/product risk).

1. Funding (cash flow) liquidity risk is the chief concern of a corporate treasurer who asks: can we pay our bills, can we fund our liabilities? A classic indicator of funding liquidity risk is the current ratio (current assets/current liabilities), or for that matter, the quick ratio. A line of credit (LOC) would be a classic mitigant.

Q.5 Compare and contrast the different types of foreign exchange risks of a multinational corporation (MNC) based in India.

Ans :Forex risks : Consider an MNC based in India. Let us discuss the forex risks which are faced by this corporation.

1. Exchange Rate Risk :

The exchange rate risks in forex trading arise due to the continuous ongoing supply and demand balance shift in the worldwide forex market. A position is a subject of all the price changes as long as it is outstanding. In order to cut short these exchange rate risks and to have profitable positions, the trading should be done within manageable limits. The common steps are the position limit and the loss limit. The limits are a function of the policy of the banks

Q. 6 Briefly explain at least three actions relating to treasury that have changed substantially with globalization. Visit a bank and analyse the various treasury products offered by the bank to its customers. Identify which of these are suitable for a large company with cash to invest, and why.

Ans : Latest developments in Treasury :

1. Centralization of treasury activities:

It offers companies the ability to achieve higher efficiencies, greater transparency and access to real time information across a broad geographic area, multiple time zones, and many entities. There are different phases in the centralization of treasury management from the decentralized treasury towards fully centralized cash and treasury management.

2. Total Working Capital Management:

As the treasury profession has matured, there has been a shift away from its original, narrow focus on cash management (i.e., the cash account on the balance sheet) to a broader focus on total working capital management. There is an emphasis on

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