Page 143 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes To manage the debt maturity profile, ensuring that in any one year repayments are no
greater than 15% of the long term debt outstanding, with a restriction on 50% of debt
maturing over the first five years of the portfolio.
To ensure that the average maturity period of long-term loans outstanding is greater than
7 years.

To take advantage of debt restructuring and debt repayment opportunities that may arise,
for future revenue savings - taking into account the risks involved.

Investment Objectives

Following are the investment objectives of treasury management:
To achieve an overall return on total deposits of at least one quarter of one per cent above
the average seven day notice London Interbank Bid Rate (LIBID) - the rate at which a bank
will bid to borrow money in the London money market with the minimum risk of capital
loss.
To achieve an average rate of interest that falls within the best performing quarter of the
London Boroughs.

8.4.2 Functions of Treasury Management

The main functions of treasury management are as follows:

To Maintain the Liquidity of Business

The main function of treasury management is to maintain the liquidity of business. Without
proper liquidity, it is very risky for business to operate smoothly. By using cash flow analysis
and working capital management, treasury officer makes a good ratio of liquid assets and liquid
liability.

To Minimize Currency Risk

In above example of Google Inc. business, it is already explained that it is the function of
treasury management to minimize the currency risk. For this, treasury managers remain in
touch with currency market of the world. They analyze the reason of crisis in currency market.
Sometimes this crisis will be benefited for them because they have to pay less to other country
for getting their service at cheap rates.

To Provide Quick Finance to Company

It is also function of treasury department to supply quick finance to company, when it needs the
money. For this, a good network in financial market is required.

Self Assessment

Fill in the blanks:
14. A finance manager keeps a track record of the …………….. in which he has to receive the
fund from debtors.
15. Finance manager creates a good relationship for getting locker facility at cheap rates and
company can keep its important …………….. in locker of banks.

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