Treasury Management for Banks Flashcards
What is the cash conversion cycle equation?
CCC= DIO + DSO - DPO
What is Treasury Management?
It is the practice of managing the cash and liquidity requirements of a business to ensure its efficient functioning
What are the 3 broad categories of treasury functions which are typical for most companies?
1) core functions which
are typical for most companies
2) marginal functions which tend to be company or
industry-specific
3) ancillary functions which are critical to the function of treasury but are not part of the treasurer’s role
What is cash management ?
It is active management of a company’s short-term cash resources to sustain its
ongoing activities and optimize liquidity.
What is cash concentration?
Cash concentration is the practice of moving balances (both debit and credit) from multiple accounts into a central (master) account to improve control and visibility of the company’s cash balances.
What are the benefits of sweeping?
Sweeping funds into a single account in a single geography provides treasury with an opportunity to use funds from multiple geographies to maximise interest, and provides increased visibility of available funds. Sweeping negative balances also
reduces interest paid on such accounts.
What are the 2 types of pooling?
physical pooling and notional pooling
What is physical pooling/sweeping?
It is when the bank moves funds between bank accounts, resulting in the source accounts having a balance of zero and the net balance being concentrated in the master account.
Typically done on a daily basis as banks can execute the sweep as part of their electronic end-of-day
closing procedures.
How many variants of sweeping are there and what are they?
There are 3
1) One way sweeping
2) Target balance sweeping
3) reverse sweep
What is one way sweeping?
generally means that only credit balances are swept to the master account and that balances are not returned to the sub accounts the following morning
What is target sweeping?
Target balance sweeping leaves a small balance in the sub account as set by treasury
What is reverse sweeping?
A reverse sweep option means that the funds are returned to the sub account the following morning to ensure the operating entities have funds for their daily
operations (challenging across different time zones)
What is the problem with sweeping between different banks?
Sweeping between different banks usually cannot achieve true end-of-day sweeping and one or more sub-accounts may not be zero balanced at end-of-day, due to time differences and delays in execution between banks.
How is geographically dispersed sweeping usually dealt with?
For geographically dispersed sweeping, corporates often do two-stage sweeping – sweeping all accounts in one country to a single regional master account in that country, and then sweeping
the total balance to the global master account. This can reduce fees and also help with visibility for treasury in that country.
What is a better alternative for cross-currency sweeping?
Cross-currency sweeping is typically a costly exercise so most companies prefer to use notional pooling instead where this is necessary
What is notional pooling?
arrangement whereby a bank offsets a company’s bank balances it holds in
order to maximize interest earned (or minimize interest paid).
