Treasury Management

• Currency netting


  Aggregating foreign exchange payments and receipts that are made between parts of an organization, and sometimes with outside organizations, to reduce the necessity for external purchase and sale activities
• Base Currency


  The currency that does not fluctuate in amount when the exchange rate fluctuates and that represents one unit of a currency
• Foreign exchange forward


  A bilateral agreement to purchase or sell a predetermined amount of currency for a future delivery date
• Nondeliverable forwards


  Contractual agreements where an exchange of the currency does not occur
• Currency futures


  Standardized forward contracts that trade on an organized exchange. Contract sizes, expiry dates, and trading and settlement rules are standardized by the exchange on which they trade
• Swaps


  Contractual agreements between two parties that provide for an exchange of currencies
• Call option


  Permits the buyer to buy the underlying currency at the strike rate
• Put option


  Permits the buyer to sell the underlying currency at the strike rate
• Collar


  An option-based strategy that combines the purchase of an option and the sale of an option, both with the same expiry date and on the same currencies
• Compound options


  Options on options. They provide the buyer with the right, but not the obligation, to enter into an option contract at the compound option's expiry date for a predetermined option premium
• Yield curve


  The graphical representation of interest rates for various terms to maturity, from overnight (1 day) to 30 years
• Forward rate agreement 


  An over-the-counter agreement between two parties, a notional borrower and a notional lender, to lock in an interest rate for a short period of time
• Asset swap


  A swap to transform an asset's income stream. Allow investors to change the interest rate structure of their revenue streams without changing the structure of the underlying asset
• Bond futures


  Can be used to hedge bond and interest rate risk, change portfolio asset allocation, or alter portfolio duration, without buying or selling the underlying bonds
• Interest rate swaps


  Bilateral negotiated contracts that enable two parties to exchange their respective interest rate obligations
• Types of risks

  • Market risks
  • Credit risks
  • Operational risks
  • Liquidity risks
• Market risks


  Arising from market prices and rates (e.g., from purchases, sales, funding)
• Credit risks


  Arising from commercial and financial market activities
• Credit risk


  Prevalent throughout the world of business. Many organizations extend trade credit, use derivatives, and borrow
• Operational risks


  Involve people, processes, or systems
• Operational risk


  Arises from human error and fraud, processes and procedures, and technology and systems
• Liquidity risks


  Involve an organization's ability to prevent depletion of financial assets and the risks and returns on invested assets
• Liquidity risk


  A major, prevalent risk. The ability of an organization to maintain adequate liquidity through its management of cash and working capital is critical to its survival
• Foreign exchange risk


  Arises through various sources, including transactions, translation of financial statements, and the activities of competitors
• Technology


  Provides the essential infrastructure for treasury. The hardware, software, and networks that provide key information for undertaking treasury activities
• Banking services


  Reflect the needs of treasury in an increasingly complex environment
• Request for proposal (RFP)


  A formal document used to determine the fit between the buyer's technology requirements and a vendor's product and service offerings