Sample End Term Exam

Treasury Management (End Term Examination)

Prof Ramesh Laxman

Duration = 1.5 Hours

Instructions: Open book, Open Laptop, Soft Copy Submission in word or excel or word & excel, No Internet

1) Banks deal substantially in money and their balance sheet is also comprised of financial assets and liabilities. What are the key measurement ratios computed in the case of a bank to evaluate the performance of a bank. (5 Marks)

2) While funding short term liquidity shortages, what are the major sources banks tries to access and in what order would they prefer to access them. (5 Marks)

3) Why is a barbell portfolio is said to be more convex than a bullet portfolio for the same duration (5 Marks)

4) Given the following prices observed in the market on 23^rd December 2011, construct a participating forward for a six month maturity and write a term sheet for the customer both for export realization and import payments. (15 Marks)

a. USD / INR Spot = 52.96 / 62. 9675

b. 6M forward Points = 169.5 / 171.50

5) Given the following bond prices, construct a butterfly strategy for an amount of INR 40 million and indicate which bond you are shorting with the quantity you are shorting and the quantities of the bond you are buying. For a ten basis point increase and decrease in the yield curve, show the gain or loss in the portfolio (10 Marks)

Bond	Coupon	Maturity	Price (in INR)
8.07% 2017	8.07%	15th Jan 2017	98.20
8.08% 2022	8.08%	2nd Aug 2022	97.65
8.30% 2040	8.30%	2nd Jul 2040	95.80

6) From the following quotations available in the market quote fix for fix cross currency swap – you must quote fixed in both USD and INR with bid offer spreads. Tenure = 5 Years. Your margins 20 basis points over /under Inter-bank for interest rates and 0.0050 for currency rates. Indicate the notional principle in INR for the customer. (10 Marks)

Market / Quote	Rate Quoted Bid	Rate Quoted Offer
USD / INR Spot	47.7350	47.7450
5 Year MIFOR against 3 month MIFOR	6.1%	6.4%
USD IRS against 3 month LIBOR	2.896	2.936

End Term Exam (Nov-2010 Batch)

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

End Term Exam

Treasury Management (Prof. Ramesh Laxman)

End Term Question paper, Batch – Nov, 2010 (Finance)

Instruction: Open Book, Open Laptop no internet

1. Briefly describe the treasury organisation in a bank treasury department [5 Marks]

2. RPL is setting up a 30,000 MW power plant in India. It approaches the US Exim Bank to fund it project to the extent of USD 5 Billion. It understands that the loan will tie it up to the procurement of plant and machinery from the US. But still it considers it to be worthwhile. Why do you think that this arrangement is good for the company. If not explain why not. [5 Marks]

3. Given the current situation (Dec 2010) what would be your advice to a company that seeks to raise USD 100 m from the market. In which currency and in which markets would you recommend that they raise the funds and what do you think would be the interest rate at which they can raise the funds and why? You answer must cover all major international markets for funds [10 Marks]

4. What in your opinion should be the approach of a company in deciding a policy to decide the basis for its borrowings between fixed rate and floating rate borrowings. In case you have excess borrowings under one method and you would like to convert it into another method then how would you achieve that objective [5 Marks]

5. In what way does the treasury management in a multinational company differ from that of a non MNC company both with respect to working capital and long term funds management. What should be an approach in determining the decisions to go ahead with a project or reject it. Also discuss which discount rates would you use to determine the present value of future cash flows. [10 Marks]

6. The following details appear in the annual report of the P and G for the year ended 30^th June, 2010.

SHORT-TERM AND LONG-TERM DEBT

June 30	2010	2009
DEBT DUE WITHIN ONE YEAR
Current portion of long-term debt	$ 564	$ 6,941
Commercial paper	7,838	5,027
Other	70	4,352
TOTAL	8,472	16,320
Short-term weighted average interest rates (1)	0.4%	2.0%

7.

(1) Weighted average short-term interest rates include the effects of interest rate swaps discussed in Note 5.

June 30	2010	2009
LONG-TERM DEBT
1.35% USD note due August 2011	$ 1,000	$ —
4.88% EUR note due October 2011	1,221	1,411
1.38% USD note due August 2012	1,250	—
3.38% EUR note due December 2012	1,710	1,975
4.50% EUR note due May 2014	1,832	2,116
4.95% USD note due August 2014	900	900
3.50% USD note due February 2015	750	750
0.95% JPY note due May 2015	1,129	—
3.15% USD note due September 2015	500	—
4.85% USD note due December 2015	700	700
5.13% EUR note due October 2017	1,344	1,552
4.70% USD note due February 2019	1,250	1,250
4.13% EUR note due December 2020	733	846
9.36% ESOP debentures due 2010 – 2021 (1)	854	896
4.88% EUR note due May 2027	1,221	1,411
6.25% GBP note due January 2030	753	832
5.50% USD note due February 2034	500	500
5.80% USD note due August 2034	600	600
5.55% USD note due March 2037	1,400	1,400
Capital lease obligations	401	392
All other long-term debt	1,876	10,062
Current portion of long-term debt	(564)	(6,941)
TOTAL	21,360	20,652

Given this situation answer the following questions

a) What do you think is the strategy adopted by the company for funding short term working capital requirements and do you agree with the company’s strategy or would you recommend an alternate strategy. [5 Marks]

b) What is your view of the future interest rate and given your view on the future course of interest rate in the US, what would you recommend the company should do in planning for liquidity and interest rate risk management. [10 Marks]