Treasury Management
(End Term Examination)
November-2010 Batch (Prof. Ramesh Laxman)
Total - 45 Marks
1. What is the duration and convexity in the context of fixed income markets. How does a treasurer use these concepts in his strategy to trade in the fixed income markets. (5 Marks)
2. What is meant by neutralizing or immunizing a balance sheet in the context of a bank. Is it practically possible to immune a total balance sheet of a bank and if so how? (5 Marks)
3. What is the interdesk dealing in the context of bank treasury. Answer with reference to the organization of a bank treasury. (5 Marks)
4. A Customer approaches you as his banker seeking a 5 year swap contract in which he want to receive US dollar and pay INR. The principle value is 100 million. He also wants to receive USD Libor every 6 months. Given the following information advise the following to the client –
The Notional Principle payable by him in INR.
The fixed interest rate payable by him if you need to add a 50 basis point spread over your cost.
Spot USD / INR = 44.28/29
Forward premia quoted in the interbank market
| 1M | 24.75 | 26.75 |
| 3M | 72.75 | 74.75 |
| 6M | 143.25 | 145.25 |
| 1Y | 242.00 | 244.00 |
Mifor Swaps were quoted as under
| 1Y | 5.75 | 6.05 |
| 2Y | 5.15 | 5.35 |
| 3Y | 5.15 | 5.35 |
| 4Y | 5.45 | 5.65 |
| 5Y | 5.95 | 6.15 |
| 7Y | 6.00 | 6.45 |
| 10Y | 5.95 | 6.35 |
Explain the logic as to how you determine the rate and what estimates you would take to lock into your profit for your bank. (10 Marks)
5. Asset Liability management is crucial to the success of a bank. What are the common approaches to the ALM in banks. How effective are they in your opinion. (5 Marks)
6. How can you make a bond portfolio duration neutral but convexity positive. If you have to deploy this strategy for INR 100 million, what would you do given the following prices in market: (15 Marks)
a. 7.40% GOI 12 (03-05-12) 99.49
b. 7.80% GOI 21 (11-04-21) 96.82
c. 8.30% GOI 40 (02-07-40) 96.90
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