MA0042 & TREASURY MANAGEMENT (BANKING)

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ASSIGNMENT

DRIVE	FALL 2015
PROGRAM	MBA 4TH SEM
SUBJECT CODE & NAME	MA0042 & TREASURY MANAGEMENT (BANKING)
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. Write the role of financial system in economic development. Explain the functioning of financial system.

Answer:The economic development of any country is dependent on its financial system -- its banks, stock markets, insurance sector, pension funds and a government-run central bank with authority -- or at least influence -- over currency and interest rates. In developed countries, these two sides of the economic coin work together to promote growth and avoid runaway price inflation. When a country is still in a developing stage, the lack of a strong, sound financial system generally works against the national economy. 

Banking Systems: Banks are the cornerstone of a national financial system. Their key services are to provide a safe haven for the earnings of individuals and loans to companies in need of capital, either to start operating or to stay in business. Without this source of available capital, businesses would be hard-pressed to continue growing and

Q.2.Under the foreign exchange exposure management explain the transaction exposure with an example and analysis. Explain translation exposure with example and also economic exposure with example.

Answer:Transaction exposure:The risk, faced by companies involved in international trade, that currency exchange rates will change after the companies have already entered into financial obligations. Such exposure to fluctuating exchange rates can lead to major losses for firms. Often, when a company identifies such exposure to changing exchange rates, it will choose to implement a hedging strategy, using forward rates to lock in an exchange rate and thus eliminate the exposure to the risk.

A firm has transaction exposure whenever it has contractual cash flows (receivables and payables) whose values are subject to unanticipated changes in exchange rates due to a contract being denominated in a foreign currency. To realize the domestic value of its foreign-denominated cash flows, the firm must exchange foreign currency for domestic currency. As firms negotiate contracts with set prices and delivery dates in the face of a volatile foreign exchange market with exchange rates constantly fluctuating, the firms face

Q.3.Explain the individual currency limits with individual gap limit and aggregate gap limit. Write about the value at risk.

Answer:Using unique online currency transactions, we examine the performance, trading activity, drawdown, and timing abilities of individual currency traders. Evidence from 428 currency accounts during the 2004–2009 period shows that currency traders earn positive abnormal returns, even after accounting for transaction costs. The results also show that day traders not only trade more frequently than non-day traders, but also outperform them in terms of raw, a passive benchmark and risk-adjusted returns.

Using a unique online currency transactions dataset, we examine the performance, trading activity, drawdown, and timing abilities of individual currency traders. Evidence from 428 accounts during the 2004–2009 period shows that currency

Q.4 Write short notes on:

a) Methods of cash-flow forecasting

Cash flow forecasting or cash flow management is a key aspect of financial management of a business, planning its future cash requirements to avoid a crisis of liquidity.  Cash flow forecasting is important because if a business runs out of cash and is not able to obtain new finance, it will become insolvent. Cash flow is the life-blood of all businesses—particularly start-ups and small enterprises. As a result, it is essential that management forecast (predict) what is going to happen to cash flow to make sure the business has enough to survive.

b)Liquidity forecasting

For market operations to be effective, the Reserve Bank must construct forecasts of exogenous liquidity movements. Each morning, forecasts of that day's flows are needed to guide the direction and size of market operations. Forecasts of future system cash movements are also required, to ensure appropriate preferred terms are selected so that unwinding repos smooth rather than exacerbate system cash movements.

To construct its liquidity forecasts, the Reserve Bank gathers information from a wide variety of sources. Extensive liaison is conducted with many departments and agencies within the Australian Government and other clients to ascertain the timing and size of their payments and receipts. Longer-term information is available from Australian Government Budget papers, and observed historical patterns provide important

c) Market instruments

In the financial marketplace, a distinction is made between the capital markets and the money markets. The capital market is a source of intermediate-term to long-term financing in the form of equity or debt securities with maturities of more than one year. The money market provides very short-term funds to corporations, municipalities and the United States government. Money market securities are debt issues with

Q.5.Capital adequacy is one of the major indicators of the financial health of a banking entity. Explain about capital adequacy and its ratio measures.

Also explain the ratios that are necessary under the assets quality.

Capital adequacy and its ratio measures

Explanation of ratio under assets quality

Answer:Capital Adequacy Ratio (CAR), also known as Capital to Risk (Weighted) Assets Ratio (CRAR), is the ratio of a bank's capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss and complies with statutory Capital requirements.  It is a measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures.  This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world.  Two types o

Q.6.Treasury has become an integral part of all business functions. Explain the areas in which Information technology plays an effective role. Write about cloud technology and treasury applications.

Answer:Information technology (IT) has become a vital and integral part of every business plan. From multi-national corporations who maintain mainframe systems and databases to small businesses that own a single computer, IT plays a role. The reasons for the omnipresent use of computer technology in business can best be determined by looking at how it is being used across the business world.

·         Communication: For many companies, email is the principal means of communication between employees, suppliers and customers. Email was one of the early drivers of the Internet, providing a simple and

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