Page 142 - DCOM208_BANKING_THEORY_AND_PRACTICE

Unit 8: Banking Systems

Notes
Example: There are 90, 00,000 ad-sense publishers and approximate US $100 which
company has to pay to each Indian ad-sense publisher after one month. Now within 15 days,
Google Inc. will choose that day when the price of dollar in Rupees will be minimum. Suppose,
if company paid on 21st Feb. 2010 US $100 to one publisher when the price of dollar is ` 46.5 and
pays ` 2139 and if the next day, price will decrease 0.5 dollar. Then, it means Google Inc. is in
foreign currency loss ` 50 each publisher because, company has power to pay in next day and
save ` 50 for each ad-sense publisher. If company has to pay US $100, then company can receive
loss of ` 45 Crore due to foreign currency loss.
So, to manage and control foreign currency is the major project under treasury management. In
government departments, fund management is under treasury management. Treasury
department makes map to collect for govt. treasure and decide how to use it for welfare works.
Finance manager creates good relationship for getting locker facility at cheap rates and company
can keep its important documents in locker of banks. These documents and commercial papers
can be sold by banks in money market and company can take part in money market by indirect
way.

Notes Finance manager also do the duty to sell company’s fixed assets at high price and he
also acquire the properties for company at cheap rate for effective utilization of treasure of
company.

8.4.1 Objectives of Treasury Management

Treasury management is done with the following objectives:

Risk Management Objectives

Following are the risk management objectives of treasury management:
To ensure the stability of the boroughs financial position, by sound risk-management
techniques;
To constantly address the need to minimize risk and volatility whilst aiming
To achieve the treasury management strategic objectives.

Borrowing Objectives

Following are the borrowing objectives of treasury management:

To ensure that exposure to different types of borrowing instruments is at a prudent level
relative to the Council’s outstanding debt.
To achieve the lowest level of interest paid on the Borough’s debt as prudently possible
while at the same time minimizing the potential volatility of the average rate of interest.
To achieve an average rate of interest that falls within the best performing quarter of
London Boroughs.
To effect funding in any one year at optimum cost - having regard to future risks from
movement in interest rates or variable rate borrowing.

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