The treasury operations and products course is a mix of core topics and four separate applications. Three of the applications deal with trading product families while the fourth deals with forecasting monetary policy (interest rate rise and cut decisions). Of the core topics the primary focus is on introducing key terms that are you likely [...]
Tag Archives: MBA Finance course
Forecasting the monetary policy
The next monetary policy announcement is due in the last week of May 2010. We attempt to forecast the cut in the policy discount rate by looking at oil prices, the relationship between oil prices and imports, exports, remittances, the current account balance, net foreign assets, credit to the private sector and [...]
Option Trading Strategies refer to a combination of trades that can be used to reduce premiums, reduce downside, reduce upside, increase leverage, reduce leverage or a combination of one or more of the above elements. We start off with a review of the simplest of option trades and then use them as building blocks for other more complex combinations.
Before you go ahead and build them or start working with a treasury group you have to get familiar with the language used. Here is a list of common terms you are likely to see in treasury and treasury operations groups
Settlement
Settlement entails carrying out a series of duties in respect of all transactions emanating from the front office effectively leading to making an actual payment.
Settlement risk is the risk that after having sent the payment instructions, there is a delay in receiving the payment or the payment is not made at all, i.e. there is [...]
Liquidity enhancement tactics
For Systemic Crisis
Liquidity management tactics may include the following:
Do not plan to rely on selling assets during cyclical peaks or credit crunches
As a cushion for capital market disruption hold very high quality assets such as treasury securities
Manage the maturities of borrowings
Do not plan on ready or cost effective access to borrowed funds
For short [...]
Contingency Funding Plan
The liquidity contingency plan addresses alternative sources of funds if initial projections of funding sources and uses are incorrect. As it is not feasible to hold funds to such an extent that it covers least likely events as well, the contingency plan will act as the bridge between the actual liquidity that is [...]
Liquidity Management
Setting limits for liquidity risk
In general liquidity limits have to be assessed for ‘normal’ business operation conditions as well as for stressed scenarios to ensure that there is sufficient liquidity at all times. The following should be considered when determining liquidity risk limits:
1. The company’s risk appetite
2. The level of the company’s capital
3. The level of the [...]
Liquidity Risk
Liquidity risk is the potential for loss to a company arising from the company’s failure to pay its debts and obligations when due because of its inability to convert assets into cash or its failure to procure enough funds at a reasonable cost. The problem could also be the result of a market disruption [...]
Credit products
Credit Default Swaps
This swap transfers the credit risk of fixed income products, like municipal bonds, mortgage backed securities and corporate debt between two parties. The buyer of the credit swap receives credit protection against default, a credit rating downgrade or any other negative credit event. The seller of the product assumes the risk and [...]
