Tribhuvan University
Faculty of Management
Office of the Dean
Bachelor of Business Administration in Finance (BBA-F)
Course Description
:The course focuses on the treasury operations of commercial banks and provides insights into banks’ assets and liabilities management. Students will foster ideas regarding concept of treasury management in a commercial bank, asset liability mismatches and their management, liquidity and investment management strategies, reserve requirements such as CRR and SLR, FOREX and Derivatives, risk involved in treasury operations, clearing, settlement and treasury system and ethical practices in treasury management. Course Learning Outcomes On completion of this course the students will be able to: Understand the concepts of Front Office, Mid Office and Back Office and differentiate the services they provide; Identify mismatches between Asset and Liabilities and suggest remedies to such mismatches; Understand why banks require to maintain liquidity reserve requirements and fill in t he format prescribed by Nepal Rastra Bank; Develop skill to implement BASEL Accord related to treasury functions; Understand foreign exchange markets, rates and trading; and learn the FOREX calculations; Understand the concepts and their significance related to derivatives used in banking; Assess and identify the risks in treasury operations; Gain knowledge on clearing, settlement and treasury system; Understand ethical part of treasury management.
Course Objective
:The purpose of the course is to develop an understanding in students about treasury concepts and functions of treasury department of commercial banks. The course also aims at giving general ideas of liquidity and profitability trade -off strategy, and clear ing, foreign exchange related activities, settlement and treasury system to manage treasury function in a bank. Course Description The course focuses on the treasury operations of commercial banks and provides insights into banks’ assets and liabilities management. Students will foster ideas regarding concept of treasury management in a commercial bank, asset liability mismatches and their management, liquidity and investment management strategies, reserve requirements such as CRR and SLR, FOREX and Derivatives, risk involved in treasury operations, clearing, settlement and treasury system and ethical practices in treasury management. Course Learning Outcomes On completion of this course the students will be able to: Understand the concepts of Front Office, Mid Office and Back Office and differentiate the services they provide; Identify mismatches between Asset and Liabilities and suggest remedies to such mismatches; Understand why banks require to maintain liquidity reserve requirements and fill in t he format prescribed by Nepal Rastra Bank; Develop skill to implement BASEL Accord related to treasury functions; Understand foreign exchange markets, rates and trading; and learn the FOREX calculations; Understand the concepts and their significance related to derivatives used in banking; Assess and identify the risks in treasury operations; Gain knowledge on clearing, settlement and treasury system; Understand ethical part of treasury management.
Course Contents:
Lecture hours show the approximate classroom time allocated to each unit.
Unit 1. Introduction to Treasury Management
- Meaning, scope and importance of treasury functions
- Governance structure of treasury functions
- Structure of treasury department in a commercial bank: front office and its roles, mid office and its roles, back office and its roles
- In tegrated treasury management:
- scope, approaches and issues.
Unit 2. Asset Liabilities Management
- Asset liabilities management in a bank: objectives and principles, constitution, roles and responsibilities of Asset Liability Committee (ALCO)
- Interest sensitive assets and interest sensitive liabilities
- Maturity mismatches of assets and liabilities
- GAP Analysis:
- duration gap, modified duration gap
- Concept of Earning at Risk (EaR) and Value at Risk
- (VaR).
Unit 3. Liquidity and Investment Management
- Concept of bank liquidity
- Stock and flow approach
- Liquidity requirements and its estimation
- Sources of liquidity
- Regulatory liquidity requirements and their computation:
- CRR and SLR, liquidit y stress and contingent funding plan
- Liquidity requirement under Basel III
- Liquidity coverage ratio (LCR) and Net stable funding ratio (NSFR)
- Bank investment: objectives and principles, instruments available for investment (short and long term), investment portfolio and its management
- Bond mathematics
- Yield curve analysis.
Unit 4. Financing for the Bank
- Bank capital
- Tier 1 capital and Tier 2 capital and their components
- Capital adequacy and its role in a bank
- Capital requirements under Basel Accord and NRB Directives
- Bank deposits: pricing and composition
- Other sources: preference shares and debentures and other borrowings.
Unit 5. Foreign Exchange and Derivatives
- Concept of foreign exchange
- Exchange rate regimes
- Determination of exchange rates
- Currency pair and cross rates
- Net open position and effect of changes in exchange rates
- Global forex market and trading on currencies, cash, tom, spot and forward deals
- Dealing rooms: structure and operations
- Derivatives: concept and their uses in a bank
- types of derivatives: currency and commodity derivatives, forwards, futures, options and swaps
- Status of derivatives in Nepalese financial market.
Unit 6. Risks in Treasury & Mitigation
- AML risks
- measurement and management of risks: interest rate risk, foreign exchange risk, liquidity risk, counter party risk, country risk
- NRB directives on mitiga tion of liquidity and foreign exchange risk.
Unit 7. Clearing, Settlement and Treasury System
- Clearing and settlement systems: characteristics of clearing and settlement systems, overview of the clearing and settlement process, Fedwire, auto mated clearing house (ACH) system, clearing house interbank payments system (CHIPS), check clearing, the continuous link settlement (CLS) system
- Treasury systems: treasurer’s technology needs, treasury management system, SWIFT connectivity.
Unit 8. Ethics in Treasury Management
- Ethics and the treasury
- Ethical considerations in treasury management: disclosure of conflict of interest, impartiality, misuse of position, title or a uthority, preservation and confidentiality, professional morality, independence and objectivity.
- Basic Book Bragg, S. M., Treasury Management. New Jersey: Wiley & Sons.
Suggested Readings:
Rose, P. S. & Hudgins, S. C. Bank Management and Financial Services. New Delhi: Tata McGraw-Hill Education. AFP. Essentials of Treasury Management. Association for Financial Professionals Nepal Rastra Bank, Unified Directives of Nepal Rastra Bank.