MA0042/MA0047 - TREASURY MANAGEMENT

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DRIVE

SUMMER 2016

PROGRAM

MBA

SEMESTER

IV

SUBJECT CODE & NAME

MA0042/MA0047

TREASURY MANAGEMENT

1 “The Call money market is an important segment in Indian money market”. In the light of the parenthesis describe the Call Money market in India.

Describe the Call money market in India

Answer: Call money market or inter-bank money market is where surplus funds of banks are mostly traded. Borrowings in the call money market are for a short duration, usually between an overnight and a fortnight to meet transient defaults. These are

2 What is exchange rate mechanism ?

Explain the factors influencing the exchange rate.

What is exchange rate mechanism ?

Explain the factors influencing exchange rates

Answer: Exchange Rate Mechanism

Exports and imports of goods and services from India to other countries necessitate payment in various currencies. A foreign

3 Write notes on :

a) Foreign market stabilization scheme bonds (MSS bonds)

b) Foreign exchange dealers association of India (FEDAI)

Answer: A) Foreign market stabilization scheme bonds (MSS bonds)

MSS (Market Stabilisation Scheme) securities are issued with the objective of providing the RBI with a stock of securities with which it can intervene in the market for managing liquidity. These securities are issued not to meet the

4 Explain the objectives and processes of managing risks in an organization.

Management of risks and its objective

Steps of risk management process

Answer: Etymologically, the word risk comes from the Latin word resicum (and French word risqué). The first formal definition of the term came from Frank Knight (1921), who said, risk is uncertainty that can be quantified. ‘...to

5 Explain the different theories of Interest rate.

Different theories of Interest rates

Answer: Interest rate risk, according to the RBI circular, is the risk where changes in market interest rates affect a bank’s financial position. Changes in interest rates affect both the current earnings (earnings perspective) as also the net worth of the bank (economic value perspective). The risk from the earnings’ perspective can be measured as changes in the Net Interest Income (NIL) or Net Interest Margin (NIM).

6 Illustrate the different approaches for computation of Value at Risk (VAR).

Approaches to compute VAR

Answer: The market risk of a portfolio refers to the possibility of financial loss due to the adverse movement of variables such as interest and exchange rates. Quantifying market risk is important to regulators

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