Treasury Markets and Operations

An in-depth look at how banks and other financial institutions manage treasury operations Created for banking and finance professionals with a desire to expand their management skillset, this book focuses on treasury operations in banking. It was written by the experts at the world-renowned Hong Kong Institute of Bankers, an organization dedicated to providing the international banking community with education and training. Offers a detailed look at treasury operations and how banks manage their relationships with various markets, including foreign exchange, bond markets, and derivatives Gives practitioners a thorough understanding of balance sheet management, settlement, and control Provides bankers with the specialised knowledge they need to undertake critical reviews of treasury operations in banks, manage a wide range of treasury activities, and identify risks

Table of Contents:
Preface ix PART 1 Treasury Management 1 1 Treasury Management of Financial Institutions 3 Learning Objectives 3 Introduction 4 Issues in Treasury Operations 4 Treasury Controls and Measures 14 Summary 19 Key Terms 20 Study Guide 21 Further Reading 21 2 The Foreign Exchange Market 23 Learning Objectives 23 Introduction 24 Basic Operation of Forex Market 24 Determining Exchange Rates 39 Forward Markets 44 Hedging the FX Exposure 56 Summary 59 Key Terms 61 Study Guide 61 Further Reading 62 3 Money and Capital Markets 63 Learning Objectives 63 Introduction 64 Hong Kong Dollar Market 64 International Market 70 Bond Market 72 RMB Market 74 The Money Market Desk 76 Money Market Operations 80 Treasury Bills 87 Capital Markets: Risk and Valuations 89 Summary 96 Key Terms 97 Study Guide 98 Further Reading 99 4 Bond Market 101 Learning Objectives 101 Introduction 102 Basics of the Bond Market 102 Pricing Bonds 106 Interest Rate Risk 118 Summary 123 Key Terms 124 Study Guide 124 Further Reading 125 5 Derivatives 127 Learning Objectives 127 Introduction 128 Derivatives for Hedging 128 Credit Derivatives 143 Options 154 Trading Strategies 173 Summary 192 Key Terms 194 Study Guide 194 Further Reading 195 PART 2 Treasury Operations 197 6 Treasury Operations 199 Learning Objectives 199 Introduction 200 Front Office 200 Middle Office 203 Back Office 209 Summary 213 Key Terms 214 Study Guide 215 Further Reading 215 7 Market Risk and Other Risk Measures 217 Learning Objectives 217 Introduction 218 Risk Considerations 218 Value-at-Risk 222 Basis Point Value and Hedging Market Risk 224 Managing Financial Risk 234 Summary 236 Key Terms 237 Study Guide 237 Further Reading 238 8 RMB Payments and Settlements 239 Learning Objectives 239 Introduction 240 RMB Clearing and Settlement 240 Summary 247 Key Terms 248 Study Guide 248 Further Reading 248 PART 3 Case Studies 249 9 Case Studies 251 Learning Objectives 251 Introduction 252 Segregation of Duties: Barings Bank 252 Settlement Risk: Herstatt Bank 258 Liquidity Risk in Position Hedging: Metallgesellschaft AG 261 Liquidity Risk: Lehman Brothers 265 Summary 270 Key Terms 270 Study Guide 271 Further Reading 271 Appendix A: CMU Members 273 Appendix B: Bond Pricing 279 Return on Debt Securities 279 Bond Products 283 Index 303

About the Author :
The Hong Kong Institute of Bankers (The HKIB) has been serving the local banking community in the provision of education and training since 1963. In 1995, with the encouragement and support of the local banking community, the Institute declared its independence from its parent institute in UK. Now independent, the Institute is able to better serve the training needs of the bankers in the region and to reflect the importance of Hong Kong as an international financial center. The continuous professional development program, comprised of training courses and professional examinations, has helped bank employees make advancements in their banking career, and is valued by most of them who are determined to strengthen their knowledge base.