CHAPTER 6 Treasury Operations

  Learning  objectives  

After studying this chapter, you should be able to:

  1. Understand and analyze the roles of the front office, including such activities as proprietary trading and corporate treasury.
  2. Describe the importance of the middle office, particularly as it relates to operational risk management and the internal audit function.
  3. Explain the role of the back office and its importance, including interbank transfers.
  4. Discuss the revaluation of bank assets and liabilities, including those meant for the trading book.
  5. Discuss the issues associated with accounting and revaluation of securities.

Introduction

Financial institutions typically have a treasury function with a front office, a middle office and a back office. These are mainly involved in the bank’s proprietary and customer-driven trading and the management of risks that emanate from such activities.

But hedging risk is only one part of the operations of the treasury. The front office, for example, has to deal with other banks as much as it has to deals with clients. The middle office, often independent, has a key role to play in operational risk management. The back office, in turn, is integral to the smooth and safe functioning of the bank by managing cash and access.

Front Office

The front office performs the most public and visible operations of any bank or financial institution as it focuses on areas like planning, dealing and trading, investments, risk management, interactions ...

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