Trading in foreign Exchange: Only authorised dealers(Ads) licensed by RBI can participate directly in the forex market.

These are usually Scheduled Commercial Banks. In addition there are institutions that have been granted a limited/restrictive AD license which permits them to undertake certain forex activities. The banks provide merchant quotes with bid ask spreads . an exporter would sell foreign currency while an importer would purchase foreign currency. Apart from merchant transactions Ads can also take proprietary positions. These positions could be taken by the AD on the back of a customer transaction or could be initiated in the inter-bank market These positions are subject to daylight and overnight limits. Trading activities act like a back-bone in providing depth to the markets. Treasury Management: Organisational structure of a commercial bank treasury should facilitate the handling of all market operations, from dealing to settlement, custody and accounting, in both the domestic and foreign exchange markets. In view of the voluminous and complex nature of transactions handled by a treasury, various functions are segregated as: Front Office : Dealing Risk Taking Mid- Office: Risk Management and Management Information Back-Office: Confirmations, Settlements, Accounting and reconciliation

It is important that the above three functions are distinct and work in water-tight compartments. The dealers are not supposed to handle settlements or accounts. The back- office should not perform dealing and accounting section should not perform dealing. Front Office The front office of a treasury has a responsibility to manage investment and market risks in accordance with instructions received from the banks ALCO. This is undertaken through the Dealing room which acts as the banks interface to international financial markets. The dealing room is the centre for market and risk management activities in the bank. It is the clearing house of risk and has the responsibility to manage the treasury risks taken in all areas of the bank, on behalf of customers, and on behalf of the bank, within the policies and limits prescribed by the Board and Risk Management Committee. For this reason significant authority is given to the Treasurer and the Dealing Room staff to commit the bank to market. Treasury also functions as profit centre of the bank. It is therefore important that treasury is managed effectively. In view of this, control over the activities of the treasury and its staff are critical to ensure that the bank is protected from undue market risk. The front office desks are the following: forex desk, domestic money market desk, fixed income desk, commodities desk and equities desk. The forex desk transacts all forex products in foreign currencies to service corporate customers and to generate income for the bank. The forex desk is a major source of income to the treasury.

Mid-Office Mid Office is responsible for onsite risk measurement, monitoring and management reporting. The other functions of a mid-office are: Limit setting and monitoring expenses in relation to limits Assessing likely market movements based on internal assessments and external/internal research Evolving hedging strategies for assets and liabilities Interacting with banks Risk Management department on liquidity and market risk Monitoring open currency positions Calculating and reporting VAR Stress testing and back testing of investment and trading portfolios Risk-return analysis Marking open positions to market to assess unrealized gains and losses.

Back Office The key functions of back-office are: Deal Slip Verification Generation and dispatch of interbank confirmations Monitoring Receipt of confirmations from counterparty banks Monitoring receipt of confirmations of forward contracts Effective/receiving payments Settlement through CCIL or direct through nostro as applicable Monitoring receipt of forex funds in interbank contracts Statutory reports to RBI Management of nostro funds to advise latest funds position to enable the Front Office to take the decision for the surplus/short fall of funds Reconciliation of nostro/other accounts Monitoring Approved exposure and position limits Accounting