Treasury Management 1





Q1. Define treasury management. Describe treasury responsibilities.


Q2. What is the role of information technology in treasury management? What is the likely future trend of IT applications in Banks for improving Treasury operations?


Q3. What are the different types of netting systems?


Q4. Discuss and explain the role of RBI. And, what are the guidelines given by RBI for risk management.


Q5. What do you understand by integrated treasury? What are the functions of integrated treasury?






Q1. What is RTGS? What is the most important risk associated with the net settlement system? How does RTGS overcome this risk?


Q2. Define rate sensitive asset and liability. State the components of interest rate risk.


Q3. What are different kinds of treasury instruments? How are forwards different from future. Explain with example.





Case study


(a) A newly opened bank with paid-up capital of Rs. 500/- crores and deposits amounting to Rs. 500/- crores wants to take up treasury operations. Outline the organizational set-up for the purpose.


(b) State whether the following statements are true or false:-

(i) A perfect hedge of asset A requires an asset B that is perfectly correlated with A.

(ii) Purchase of a future contract involves payment now for delivery at a future date.

(iii) Holder of a financial futures contract misses out on any dividend or interest payment made on the underlying security.













1. Spot transaction is a transaction where exchange takes place:

(a) On the same day

(b) 2 Days later

(c) Some days later, say 1 month

(d) None of the above


2. Derivatives are essentially:

(a) A simple forward contract

(b) Forward contracts with special features

(c) Cash transactions

(d) None of the above


3. The purpose of reducing the market yields to zero coupon yields is to:

(a) Eliminate difficult calculations

(b) Eliminate reinvestment risk

(c) Eliminate basis risk

(d) None of the above


4. Frequency of coupon payments and duration of a bond are:

(a) Directly related

(b) Inversely related

(c) Not related at all

(d) Randomly related


5. The initial margin to be paid to trade in a Futures exchange depends on:

(a) Volatility of the price movements of the underlying

(b) The spot price of the underlying

(c) The forward rate of the underlying

(d) None of the above


6. The benchmark rate for interest rate swaps done in India:

(a) May be any domestic money or debt market rate

(b) Must be only government securities yields

(c) Must be only MIBOR

(d) None of the above


7. In an overnight index swap, the:

(a) Settlement takes place on a daily basis

(b) Settlement normally takes place on the maturity date

(c) Settlement takes place at the exact mid period of the swap maturity

(d) None of the above


8. A credit derivative seeks to:

(a) Protect the market risk as well as the credit risk of an asset

(b) Segregate the credit risk from an asset and trade it separately

(c) Transfer the credit risk along with the reference asset to the credit risk buyer

(d) None of the above


9. Commercial Papers are valued at:

(a) Carrying cost

(b) Repurchase price

(c) Valued at cost

(d) Book value


10. The spread should be marked up by……for unrated corporate bonds:

(a) 10%

(b) 15%

(c) 20%

(d) 25%


11. G-Secs and State Government securities are evaluated on the basis of the following:

(a) Current Yield

(b) Yield to Maturity

(c) Duration

(d) All of the above


12 The most important risks which it has to manage are:

(a) Liquidity risk

(b) Price risk

(c)Counterparty risk

(d) All of the above


13. The treasury domestic operations include:

(a) Extending cover to foreign exchange trade transactions

(b) Funding and managing forex assets and liabilities

(c) Providing hedge to forex risks proprietary and for its constituents

(d) None of the above


14. The treasury not only provides the interface between the bank and the external market, it also provides an interface between the asset and liability groups of the bank.

(a) True

(b) False


15. Risk arising from time differences between trading zones:

(a) Country Risk

(b) Settlement Risk

(c) Political Risk

(d) Operational Risk


16. Credit risk is:

(a) An asset that cannot be converted into cash when needed

(b) A generic term to describe both interest rate risk and event (‘systematic’) risk.

(c) This covers the entire gamut of the transaction cycle from dealing to custody.

(d) The possibility of the issuer of a debt instrument being unable to honour his interest payments and/ or principal repayment obligations


17. VaR is

(a) Derived from a statistical formula based on volatility of the market.

(b) Applied to calculate the risk content of an individual security, foreign exchange position, equity share or a portfolio of these instruments.

(c) An estimate of potential loss, always for a given period at a given confidence level.

(d) All of the above


18. Trading limits are:

(a) Limits on deal size

(b) Limits on open positions

(c) Stop-loss limits.

(d) All of the above


19. The term government securities include:

(a) Government Dated Securities

(b) State Government Securities

(c) Treasury Bills

(d) All of the above


20. CCIL applies the concepts of:

(a) Novation

(b) Multilateral netting

(c) Both (a) & (b)

(d) None of the above


21. Adequacy of a bank’s liquidity position depends upon:

(a) Sources of funds

(b) Anticipated future funding needs

(c) Present and future earnings capacity

(d) All of the above


22. Objective of liquidity management is to:

(a) Ensure profitability

(b) Ensure liquidity

(c) Either of the two

(d) Both


23. The ALM Support Groups consisting of operating staff should be responsible for:

(a) Analysing the risk profiles to the ALCO

(b) Monitoring the risk profiles to the ALCO

(c) Report­ing the risk profiles to the ALCO.

(d) All of the above


24. Front-office is responsible for:


(a) Risk management, accounting and manage­ment information

(b) Confirmations, settlement and reconciliation

(c) Dealing

(d) None of the above


25. Mandates shall not be for a period of more than………unless otherwise specified

(a) 15 minutes

(b) 30 minutes

(c) 45 minutes

(d) 1 hour


26. The dealers should enter the deals, concluded on the NDS or to be reported on the NDS, within a period of………. of the conclusion of the deal.

(a) 30 minutes

(b) 45 minutes

(c) 15 minutes

(d) 1 hour


27. Money market is a center in which financial institutions congregate for the purpose of dealing impersonally in monetary assets.


(a) True


(b) False


28. For settlement purposes, CCIL requires a margin of………of the net debit cap to be maintained in USD.

(a) 4.5%


(c) 5.5%



29. The spread should be marked up by……for preference shares

(a) 10%

(b) 15%

(c) 20%

(d) 25%


30. The basic objective of integration is to

(a) Improve portfolio profitability

(b) Risk-insulation

(c) Synergize banking assets with trading assets

(d) All of the above


31. Integrated treasury is a………….center

(a) Profit

(a) Cost

(b) Profit / Cost

(c) None of the above


32. Electronic records of ownership of securities are held by:

(a) DPs

(b) NDSL

(c) CDSL

(d) All of the above


33. This is an electronic trading platform for the following instruments:

(a) Commercial Paper

(b) Certificates of Deposit

(c) Repos

(d) All of the above


34. Which of the following are the factors affecting interest rates?

(a) Macroeconomic, social and political influences

(b)Exchange control regulations and exchange rate policy

(c) Balance of payment and balance of trade

(d) Relative price and inflation


35. Integrated treasury approach enables the bank:

(a) To optimize its asset-liability management

(b)(b)capitalize arbitrage opportunities

(c) Both (a) & (b)

(d)None of the above


36. The swap differentials of currencies may not reflect the interest rate differentials because:

(a) The Indian markets are not totally free from regulations.

(b) The Indian financial markets will also behave in a similar way as the global financial markets when full convertibility in capital introduced

(c) Both (a) & (b)

(d) None of the above


37. The foreign exchange market is

(a) Not a physical place

(b) It is electronically linked networks of banks

(c) A 24 hour market

(d) All of the above


38. The treasury structure for dealing department should consist of

(a) Dealers

(b)Back up staff

(c) Trained Personnel

(d) All of the above


39. The Indian financial markets will also behave in a similar way as the global financial markets when full convertibility in capital introduced.

(a) True


(b) False


40. The treasury organization:

(a) Review of the effectiveness of the current organization.

(b) Adequacy of Treasury policy and procedures documentation,

(c) Evaluation of procedures, and practices for effectiveness, appropriateness, and security.

(d) All of the above