__BANK FINANCIAL MANAGEMENT (BFM) __

Unit - 17: Treasury Risk Management

Unit - 17: Treasury Risk Management

2. In Treasury business front office is called

3. Exposure limits protect the bank from C

5. The exposure limits are fixed on the basis of the counter party’s net worth,

6. RBI has imposed a ceiling of

7. Limits imposed are

8. Trading limits are of

9. Open position refers to the trading positions, where the buy / sell positions are

10. All the forward contracts are revalued

11. The stop loss limits prevent the dealer from

12. The

13. Two main components of market risk are

15.

16. The Interest rate risk refers to rise in interest costs eroding the business profits or resulting in fall in assets prices.

17. The interest rate risk is present where ever there is mismatch in assets and liabilities.

18. If the currency is convertible, the exchange rate and interest rate changes play greater role in attracting foreign investment inflows into the secondary market.

19. Marker Risk is a confluence of liquidity risk, interest rate risk, Exchange rate risk, Equity risk and Commodity risk.

20. BIS defines Market Risk as, “ The Risk that the value of on- or – off Balance Sheet positions will be adversely affected by movements in equity and interest rate markets, Currency exchange rates and Commodity prices”

21. The Market Risk is closely connected with

22. The Market Risk is also known as

23. Two important measures of risk are

24. Value at Risk (VAR) at 95% confidence level implies a 5% probability of incurring the loss.

25. VAR is an estimate of potential loss always for a given period at a confidence level.

26. There are three approaches to calculate the AVR i.e. Parametric Approach, Monte Carlo Approach and Historical Data.

27. VAR is derived from a statistical formulae based on volatility of the market.

28. Parametric Approach is based on sensitivity of various Risk components.

29. Under Monte Carlo model a number of scenarios are generated at random and their impact on the subject is studied.

30. Duration is widely used in investment business.

31. The rate at which the present value equals the market price of a bond is known as YTM.

32. Yield & price of a bond moves in inverse proportion.

33. Duration is weighted average measure of life of a bond, where the time of receipt of a cash flow is weighted by the present value of the cash flow.

34. Duration method is also known as Mecalay Duration, its originator is Frederic Mecalay.

35. Longer the duration, greater is the

36. A proportionate change in prices corresponding to the change in yields is possible, only when the yield curve is linear.

37. Derivatives are used to protect treasury transactions from Market Risk.

38. Derivatives are also useful in managing Balance Sheet risk in

39. Treasury transactions are of high value & relatively need

40. Market movements are mainly due

41. VAR is the maximum loss that may take place with in a time horizon at a given

42. Leverage is Capital Adequacy Ratio incase of companies it is expressed as

1) The Risk of loosing capital is much higher than the risk in the credit business

2) Large size of transactions done at the discretion of treasurer

3) Losses in treasury business materialize in very short term and the transactions once confirmed are irrevocable.

1) Organizational controls

2) Exposure ceiling and

3) Limits on trading portions and stop loss limits.