CHAPTER 1 Treasury Management of Financial Institutions

  Learning  objectives  

After studying this chapter, you should be able to:

  1. Understand the role the treasury plays in financial institutions including those of the front office, middle office, and back office.
  2. Discuss treasury issues such as management of the balance sheet, liquidity risk, settlement and pre-settlement credit risk, interest rate risk, and foreign exchange exposure.
  3. Understand the implications of the Basel III accords on asset and liability management.
  4. Describe the controls and measures in treasury management to protect against overexposure, errors, and fraud, manage conflicts of interest, and other issues.


Among companies in general, the corporate treasury department makes sure there is sufficient cash at all times to meet the operational needs of the business. Treasury also takes charge of cash forecasting, working capital management, cash management, investment management, treasury risk management, and fund-raising.

Treasury in financial institutions functions the same way—with one important addition. In institutions where investment banking is a key activity, treasury also participates in the foreign exchange, loans and deposits, debt securities, commodity products, and their derivative instruments on behalf of the bank and the bank’s clients.

As such, it is important for banking professional, not only to master the intricacies of managing the treasury function, but also to gain a deep ...

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