MA0042 - TREASURY MANAGEMENT

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ASSIGNMENT

DRIVE	SUMMER 2015
PROGRAM	MBADS (SEM 4/SEM 6)MBAFLEX/ MBA (SEM 4) PGDBMN (SEM 2)
SUBJECT CODE & NAME	MA0042TREASURY MANAGEMENT
BK ID	B1813
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. Asset liability management (ALM) refers to the strategic balance involving risks caused by the changes in rates of interest, exchange and liquidity position in the organisation. Do you agree? If so, narrate the significance and objectives of ALM in recent years caused by these changes.

Answer:Initially pioneered by Anglo-Saxon financial institutions during the 1970s as interest rates became increasingly volatile, asset and liability management (often abbreviated ALM) is the practice of managing risks that arise due to mismatches between the assets and liabilities.  The process is at the crossroads between risk management and strategic planning. It is not just about offering solutions to mitigate or hedge the risks arising from the interaction of assets and liabilities but is focused on a long-term perspective: success in the process of maximising assets to meet complex liabilities may increase profitability.

Q. 2. “A debt market establishes a structured environment for trading of debt instruments between interested parties like corporate partners”. Can you elaborate further citing the features and classifications of Indian debt market and giving examples of some commonly traded debt instruments?

Answer:The debt market is any market situation where the trading of debt instruments takes place. Examples of debt instruments include mortgages, promissory notes, bonds, and Certificates of Deposit. A debt market establishes a structured environment where these types of debt can be traded with ease between interested parties.

This market often goes by other names, based on the

Q. 3. Describe foreign exchange SWAPs. How will you compare and contrast between foreign exchange and currency SWAPs ?

Answer:In finance, a foreign exchange swap, forex swap, or FX swap is a simultaneous purchase and sale of identical amounts of one currency for another with two different value dates (normally spot to forward). see Foreign exchange derivative. Foreign Exchange Swap allows sums of a certain currency to be used to fund charges designated in another currency without acquiring foreign exchange risk. It permits companies that have funds in different currencies to manage them efficiently.

Q. 4. “A firm must have adequate working capital, neither excess nor inadequate”. Do you agree? Justify your views citing the imminent risks of excess or inadequate working capital.

Answer:A managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses. Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are

Q. 5. Discuss your perception about Interest Rate Risk (IRR) - the causes and effects. How would you explain the measurement techniques for IRR ?

Answer:Interest rate risk is the risk that arises for bond owners from fluctuating interest rates. How much interest rate risk a bond has depends on how sensitive its price is to interest rate changes in the market. The sensitivity depends on two things, the bond's time to maturity, and the coupon rate of the bond.

Calculating interest rate risk

Q. 6. “A more advanced treasury organization has evolved in the past decade in which the focus on management has followed the economic factors which drive firm value with corporate wide cash flow”. In the light of above discuss the areas of concentration of modern treasury management.

Answer:Treasury management (or treasury operations) includes management of an enterprise's holdings, with the ultimate goal of managing the firm's liquidity and mitigating its operational, financial and reputational risk. Treasury Management includes a firm's collections, disbursements, concentration, investment and funding activities. In larger firms, it may also include trading in bonds, currencies, financial derivatives and the associated financial risk management.

Most banks have whole departments devoted to treasury

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