Lenders Financial Intermediaries Financial Markets Borrowers Individuals Companies Banks Asset Management Companies Real Estate Agents Stock Exchange Money Market Bond Market Real Estate Individuals Companies Government Public Corporations Lending Cycle Return Cycle 2 Saturday, August 02, 2014 Financial Markets Financial Market (For Trading Financial Securities) Capital Market (For Raising Capital) Derivative Market (For Transfer of Risk) Currency Market (For International Trade) Equity Market (Issuance of Shares) Debt Market (Lending Borrowing) Money Market (Short term Borrowing) Bond Market (Long term Borrowing) Saturday, August 02, 2014 3 Introduction and Overview What is Treasury? Evolution of Treasury function- the history How concept of treasury evolved, its significance Types and Structure of Markets - Financial - Capital - Primary - Secondary Treasury operations (or treasury management) includes management of an enterprises holdings in and trading in government and corporate bonds, currencies, and derivatives, and the associated financial risk management Treasury Operations Saturday, August 02, 2014 5 Involve Asset/liability Management Forecasting Net Interest Income Measuring Interest Rate Risk Managing Bank Reserve Risk Capital Requirement Manage Liquidity Borrow at Lesser Rate & Lend at Higher Rate Treasury Department Function Saturday, August 02, 2014 6 Role of Treasury In Organizations Cash Management Profit Making/Revenue Generation Financial Risk Management Funding and Capital Market Corporate Governance Financial Risk Management
Challenges Economic Downturn Changes in Economies Risk Expectation of Organization Countries Risk/Rating Currencies Risk Interest rate risk
Role of Treasurer To achieve the goal of the organization to maximize shareholders wealth General Financial Oversight Funding and Fund Raising Financial Planning and Budgeting Banking, Book keeping and Record-Keeping Reserve Maintenance
Over view of Financial System 1. Function of Financial Markets and Financial Intermediaries 2. Structure of Financial Markets Debt and Equity Markets Primary and Secondary Markets Exchanges and Over-the-Counter Markets Money and Capital Markets 3. Financial Instruments Money Market Instruments Capital Market Instruments Contd 4. Role of Financial Intermediaries Transaction Costs and Economies of Scale Risk Sharing and Diversification Adverse Selection and Moral Hazard 5. Types of Financial Intermediaries Depository Institutions (Banks) Contractual Savings Institutions Investment Intermediaries and Diversification
Classification of Financial Markets Financial Markets Money Markets Debt Markets Equity Markets Forex Markets Derivates What is the Goal of an Organization Stock holders wealth safe guard and maximization Profit Maximization Efficient use of Resources Enhancing the companys image Brief of Financial Instruments Involve monetary Value Short Term/Long Term Types of Capital Markets
Treasuries performance Subprime Crisis Rules and regulations Develop new products 1. FRONT OFFICE 2. MIDDLE OFFICE 3. BACK OFFICE
IMPORTANT AREAS OF TREASURY RELATED ACTIVITIES Saturday, August 02, 2014 16 Take investment decision Placement Buying & selling currencies Hedging Speculating Arbitraging Managing cash flows Saturday, August 02, 2014 17 FRONT OFFICE FUNCTIONS Risk management Rating counter parties Restriction on dealers Restriction on counterparties