Treasury Management Function in Nepalese Banking Sectors Chapter 10 Treasury Management Function in Nepalese Banking Sectors

What is a treasury management ? 11/9/2018 The art of managing, within the acceptable level of risk, the consolidated fund of the bank optimally and profitably is called Treasury Management. Treasury management (or treasury operations) includes management of a company's holdings, with the ultimate goal of managing the firm's liquidity and mitigating its operational, financial and reputational risk. Treasury Management includes a firm's collections, disbursements, concentration, investment and funding activities.

SCOPE OF TREASURY MANAGEMENT 11/9/2018 A treasury department is to control and manage the bank's money (in terms of capital and liquidity) and to make sure that all parts of the bank can readily access the cash they need for their business activities. LIQUIDITY MANAGEMENT MONEY MARKET TRANSACTION CAPITAL MARKET TRANSACTION CORRESPONDENT BANKING FOREIGN EXCHANGE MANAGEMENT RATE DETERMINATION

LIQUIDITY MANAGEMENT The objective of liquidity management is to maintain adequate level of liquidity and raise profitability of the bank managing the surplus liquidity. Bank will follow raising cash on short notice with low cost as possible in shortage of funds and convert funds in earnings assets if surplus funds are available. In the situation of surplus liquidity, the treasury should use in money market lending, reverse repo, buying T-bills, and government securities. When the bank is in situation of deficit of liquidity, treasury should go for any of interbank borrowings, borrowing against T- bills and bond or debentures or Repo, Standing liquidity facility by NRB, liquidation of Treasury bills and bonds, Accepting and calling deposits etc. 11/9/2018

MONEY MARKET TRANSACTION 11/9/2018 Money market is market where short term security with high liquidity are traded. It is used as a means for borrowing and lending in the short term basis i.e. one year or less than one year. The investment in Treasury bills shall be done for the purpose of maintaining statutory liquidity ratio and managing returns and liquidity. The treasury department will purchase the Treasury bill within the approved limits.

CAPITAL MARKET TRANSACTION Capital markets are the market where long term securities are traded. In capital market, long term debt and equity are buying and selling. This type of market is composed of the both the primary and secondary markets. Treasury department shall make the long term investment in capital market instruments like government bond, corporate bonds, preference shares and equity shares. These investments should be done through primary as well as secondary market under the directives issued by Nepal Rastra Bank.

CORRESPONDENT BANKING 11/9/2018 Another scope of the Treasury is the correspondent banking. Correspondent banking provides credit, deposit, collection, clearing and payment services to banks and financial institutions. These types of services are limited to bank and financial institutions.

FOREIGN EXCHANGE MANAGEMENT 11/9/2018 The foreign exchange market or forex market as it is often called is the market in which currencies are traded. This is because the value of one currency is determined by its comparison to another currency. The first currency of a currency pair is called the ―base currency, while the second currency is called the counter currency. The currency pair shows how much of the counter currency is needed to purchase one unit of the base currency.

RATE DETERMINATION 11/9/2018 Treasury should use two way pricing system to publish rates. Normally, price will be moved freely on the basis of the forces of demand and supply in the market. Dealers are responsible for issuing daily exchange rates of each convertible foreign currency. These are fixed against Nepalese rupees at the start of the business each morning. The spread of buying and selling rate would be as determined by the authority. Dealers will issue revised rates during the business hours if market conditions change significantly.

ROLE AND FUNCTION OF TREASURY DEPARTMENT

Foreign Exchange Dealer's Association of Nepal (FEDAN) 11/9/2018 It is established for teams and conditions for transactions in foreign exchange business in Nepal. Authorized dealers has to given an undertaking to Nepal Rastra Bank to abide by the exchange control and other terms and conditions introduced by the association for transactions in foreign exchange business. It has evolved various rules for various transaction in order to protect the interest of the exporters, importers general public and also the authorized in dealers.

FEDAN…………….. 11/9/2018 It is the self regulated organization consist the treasury dealers from the commercial banks and some development banks of Nepal. Its primary objective is to initiate the close contact among the treasury dealers of Nepal to facilitate the money market deals (both NPR and FCY) and also discuss on relevant issue relating with FCY and money market of Nepal. It also discusses and conduct meeting among the FEDAN dealers and with regulation like NRB and MOF.

Duties of FEDAN. 11/9/2018

RESPONSIBILITIES & FUNCTIONS OF FEDAN 11/9/2018

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