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TREASURY
Sanctity
of Central Banking --Dr.M Seenuvasan
Earlier,
even in the absence of the central banks, depositors were
able to monitor and understand economic developments out of
their own experience. The need for a central bank-like lender
was raised initially to support small and undiversified banks
which were in 'panic'. the Central Bank evolved as a response
to the inability of the bank coalitions to cope with panics.
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Integrated
Treasury in Psbs: A Perspective --Ashok Bhattacharya General Manager (Treasury), State Bank
of Hyderabad.
To
meet the challenges of integration, PSBs are compelled to
come out with new and better treasury tools for their customers.
With consistent threat from foreign banks, PSBs are expected
to take the challenge. Meanwhile, RBI's intervention in the
public sector banking business is also expected to add to
their treasury's future.
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Capital
Adequacy:The New Challenges of Basel II --Anand Anchan President, Global Trust Bank Ltd., Hyderabad.
Events
such as the Enron bankruptcy and the trading losses have increased
the awareness of risk. Basel II, primarily focuses on the
internal methodologies for better risk management in the financial
sector, with special emphasis on banks. In essence, it aims
to ensure effective risk management and security systems in
the financial sector.
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Opting
for Options --A Purushothaman
Options
are the outcome of the excessive search for better financial
instruments. They belong to a class of instruments called
derivatives. An option is an alternative that is created through
a financial contract. Today, options are available on index,
stocks and foriegn currencies. Though they offer unlimited
profit with limited downside potential, one needs to take
utmost care while dealing with options.
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Money
Market: The Need for Depth --Anjan Barua Executive Vice-President Discount and Finance
House of India Ltd.Mumbai.
An
efficient money market plays an important role in the financial
growth and stability of the country. It works as a sterilizing
platform and equilibrates the money. The Indian money market
has passed through different phases of reforms which started
in 1987. The present state of money market in India, requires
an immediate change in terms of its depth and width. The RBI
is concentrating on the main issues associated with the Indian
money market. Moreover, there is a need for more instruments
in this market. Interest Rate Derivatives is a new introduction
towards this need. The RBI has set up a Working Group on instruments
of sterilization to propose new instrument in money market.
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Accounting
and Taxation of Equity Derivatives in India --D C Patwari
The
introduction of equity derivatives in India was to provide
hedging facilities to the market participants. Today, they
have become an integral part of the Indian Capital Market.
There is an immediate need to recognize the principles of
hedge accounting in the accounting of derivatives contracts.
The increasing volume in this market also calls for introduction
of such accounting principles at the earliest.
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RTGS
- The Need for Change --S L Chhatre Kotak Mahindra Bank
The
Real-time Gross Settlement System (RTGS) the world over, has
been the preferred mode of settlement of large value inter-bank
payments. RTGS, as a settlement process, minimizes settlement
risks by way of individual payments in real-time, in the books
of account held at the Central Bank. The scope of RTGS covers
both the internal and external issues concerning a bank.
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Gold
Futures: A Reincarnation --Prof. Aman Agarwal
The
futures measure was originally developed to meet the needs
of the farmers and merchants. A futures contract is an agreement
to buy or sell a standard quantity of a specific instrument
at a predetermined future date and at a predetermined price
agreed upon. Among the various categories of futures, one
is the methodological category that includes genuine metals
and petro-products. Thus, if the gold futures in the Indian
market present a good outlook, then the government may come
up with trading of other precious metals too.
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Financial
Innovations: Some Old Wine and Some New --Banikanta Mishra Professor of Finance, Xavier Institute
of Management, Bhubaneswar and Director, Sundaram (Mutual)
Asset Management Company
Traditionally,
liquid assets such as T-bills, CPs & CDs, were the key functions
in many organizations. But with more and more innovations
in the financial markets across the globe, the need for better
tools is felt. These scientific tools are expected to serve
as better alternatives in today's high-tech era.
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Interest
Rates between 1970-2001 --Dr.S Venkata Sheshaiah
This
article examines the interest rates and inflation movement
over a period of time and the reasons for these fluctuations.
The main objective is to analyze how changes in the yield
curve and expected inflation affect the gaps between short-term
nominal and real interest rates between the period 1970-2001.
The analysis includes the comparison of short-term nominal
interest rate and inflation, long-term nominal rates and inflation,
maturity premium and inflation and the short-term and the
long-term interest rates.
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RISK
A
Simple Measure of Credit Risk Concentration --Ganti Subrahmanyam Chancellor, Le Magnus University, Raipur,
and Chair Professor in Monetary Economics, GITAM Institute
of Foreign Trade, Visakhapatnam.
The
Banking sector is passing through a series of changes. The
approaches of lending and credit portfolio management have
undergone change in complexion and complexity. Measurement
of Credit risk in case of banks is very important because
80% of bank's balance sheet contains credit risk directly
and indirectly. But the banks are using the conventional tools
for measuring the risks and this statistical analysis suffer
from several limitations. The financial ratios are mainly
used to arrive at the financial indicators. Here the modern
portfolio theory can be applied. All the investors are risk-averse
and the portfolio diversification helps to reduce the risk.
To reduce the risk exposure of a bank, this portfolio theory
can be applied in loan portfolio. More they diversify the
loan portfolio, lesser will be the credit risk exposure.
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Floating
is Risky --T.Ravikumar
Interest
rate is one of the important economic indicators of a country.
Almost in all the monetary transactions that take place in
an economy, interest rates have a major influence. With the
changing scenario of the financial markets across the world,
interest rates have also come across innovations. Traditionally,
only fixed rate of interest prevailed in the market, but now,
floating rate of interest has also come up to serve as an
alternative. Though floating rates provide an alternative
to fixed rate, it does involve risk. Presently, floating rate
loans and deposits have gained a lot of importance in almost
all the financial sectors.
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Management
of Financial Risks in Banks --D N M Raju Lecturer in Commerce, Andhra Loyola College,
Vijayawada, Prof. G N Brahmanandam Dean, Faculty of Commerce,
Nagarjuna University
In
this fast changing competitive environment, dimensions of
risks faced by Indian banks are increasing with The new economic
policy. This has prompted the banking sector to properly analyse
financial risk and to adopt proper tools to manage it. Due
to the influence of the international finance market, the
Indian financial market has become less stable. The main risks
associated with the banking sector are, credit risk, interest
rate risk, foreign exchange risk and liquidity risk. To combat
these risks, there should be a Risk management Committee which
should identify, measure and monitor the risks of banks at
organizational level. The present system of risk management
is only a beginning and it needs a lot of professionalism,
in order to manage the broad aspects of financial risks.
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Risk
Management: The New Frontier --A V Vedpuriswar
Risk
Management is the practice of continuously assessing and controlling
all known exposures and hedging risks to a sustainable level
or maximizing profitable returns wherever applicable. It is
a vast area that covers all aspects of a firm's activities
and is perceived as an attempt to manage a firm's risk level
using various derivative instruments. Risk management, although
essential to control risk and avoid losses, cannot guarantee
complete success. The selection of suitable methods for risk
management depends on a firm's expectations regarding the
future, as well as the degree of risk, acceptable to the management.
In short, the aim of risk management is to maintain risk at
a desired level at minimum cost.
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FOREX
Managing
a Natural Hedge --Jamal Mecklai Chief Executive Officer, Mecklai Financial
& Commercial Services Ltd.
A
natural hedge is the reduction in risk that can arise from
a company's normal operating procedures. A company which has
receivables and payables in foreign currency also comes under
the profile of natural hedge. A suitable measure of the exchange
rate effect on these gaps, as variance from the budgeted numbers,
can provide the management with true estimates of the profitability
of different operations and businesses.
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