DBFI401 ALM AND TREASURY MANAGEMENT

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SESSION February – March 2024
PROGRAM MASTER OF BUSINESS ADMINISTRATION (MBA)
SEMESTER IV
course CODE & NAME DBFI401,

ALM and Treasury Management
CREDITS 04

 

 

Assignment Set – 1ST

Questions

  1. A. Summarize major functions of ALM.

Ans: Asset-Liability Management (ALM) is a critical function within financial institutions, especially banks, aimed at managing the risks that arise due to mismatches between the assets and liabilities in terms of maturity, interest rates, and liquidity.

Here are the major functions of ALM: 

  1. Interest Rate Risk Management Gap Analysis: Identifies mismatches between the maturity and reprising dates of assets and liabilities to understand the institution’s exposure to interest rate fluctuations.

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  1. Rate Sensitive assets of a Bank as on 31.03.2024 are ₹ 800 cr @ 8% and Rate sensitive liabilities as on 31.03.24 are ₹ 1000 cr @ 5%.Calculate Gap as on 31.03.2024 and Net Interest Income of the Bank.

Ans: To calculate the Gap as on 31.03.2024 and the Net Interest Income (NII) of the bank, we need to follow these steps: 

  1. Calculate the Gap

The Gap is the difference between the rate-sensitive assets (RSA) and the rate-sensitive liabilities (RSL).

It shows the bank’s exposure to interest rate changes.

Gap

= RSA − RSL Gap

=RSA−RSL

Given: 

Rate Sensitive

 

  1. Outline the advantages of Treasury Management System.

Ans: A Treasury Management System (TMS) is a software solution that automates and streamlines the financial operations and management of a company’s treasury functions. The system is designed to enhance the efficiency, accuracy, and security of financial transactions and risk management activities.

Here are the key advantages of

 

  1. Differentiate between Banking Book and Trading Book.

Ans: The terms “Banking Book” and “Trading Book” refer to different segments of a financial institution’s portfolio, each with distinct characteristics, purposes, and regulatory requirements.

Here’s a detailed differentiation between the two: 

 

  Banking Book Trading Book

 

 

 

Assignment Set – 2ND

Questions

  1. A. Differentiate between Hedger, Speculator and Arbitrager.

Ans:

  Hedger Speculator Arbitrager

 

 

  1. Infosys stock is quoted on National Stock Exchange (INR) at ₹ 800 while on NYSE (USD) at USD 10.47. Determine if an arbitrage profit is possible. (USD/INR is 83.40).

Ans: To determine if an arbitrage profit is possible between the quoted prices of Infosys stock on the National Stock Exchange (NSE) in India and the New York Stock Exchange (NYSE) in the United States, we need to compare the equivalent prices of the stock in the same currency.

Here, we

 

 

  1. A. Rate Sensitive assets of a Bank as on 31.03.2024 are ₹ 800 cr @ 8% and Rate sensitive liabilities as on 31.03.24 are ₹ 1000 cr @ 5%. Calculate Gap as on 31.03.2024 and Net Interest Income of the Bank.

Ans: To calculate the Gap as on 31.03.2024 and the Net Interest Income (NII) of the bank, we need to follow these steps: 

  1. Calculate the Gap

The Gap is the difference between the rate-sensitive assets (RSA) and the rate-sensitive liabilities (RSL).

It shows the bank’s exposure to interest rate changes. 

Gap = RSA − RSL Gap=RSA−

 

  1. If interest rates on assets and liabilities reduce by 100 basis points (1%), calculate the impact on the NII (Net Interest Income) of the Bank.

Ans: To calculate the Gap as on 31.03.2024 and the Net Interest Income (NII) of the bank, we need to follow these steps: 

  1. Calculate the Gap

The Gap is the difference between the rate-sensitive assets (RSA) and the rate-sensitive liabilities (RSL). It shows the bank’s exposure to interest rate changes.

Gap = RSA − RSL Gap=RSA−RSL

Given:  Rate Sensitive Assets (RSA)

= ₹800 crore Rate

 

 

  1. A. Briefly explain liquidity risk for a Bank differentiating between funding liquidity and market liquidity risk.

Ans: Liquidity risk for a bank refers to the risk that the bank will not be able to meet its short-term financial obligations as they come due without incurring unacceptable losses. This risk is a critical aspect of a bank’s overall risk management strategy.

Liquidity risk can be broadly categorized into two types: funding liquidity risk and market

 

 

  1. Elaborate on RBI guidelines for classifying volatile and core deposits in a Bank.

Ans:

The Reserve Bank of India (RBI) provides guidelines for banks to classify deposits into two categories: volatile and core deposits. These classifications help banks assess their funding stability and manage liquidity risk effectively.

Here’s an elaboration on RBI guidelines for classifying volatile and core deposits: 

  1. Core Deposits:

 

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