CHANDAN KISHORE SHARMA 510931712 LC CODE : 1799

Master of Business Administration MBA Semester 4

Q.1 Describe all the tasks of Treasury Management in large Company. Answer: The tasks of Treasury Management vary depending upon the nature of the organisation, operation, quality of management etc. However, the following functions are generally attributable to Treasury management in large company. (1) Framing Treasury Policies: Policies are to be framed regarding borrowing, investment, payment of expenses like salary, purchase of raw materials. Many areas regarding cash sales, receipts from debtors etc., are also to be considered and suitable policies are framed. Policies regarding cash sale and the terms of cash sale are to be framed. Borrowing long-term funds to meet the capital expenditure also needs framing policies. These policies relate to deciding about the borrowers and the nature of instrument of borrowing. Policy regarding the source of finance and the instruments used to borrow for the capital expenditure will make a severe impact on the future cash flows of the corporate for a long time to come. Therefore, the policies are to be framed carefully.

(2) Establishing a Treasury System: A suitable system should be established to account for all the income, expenses, payments and receipts. These are necessary, not only to avoid misuse of funds, but also to ensure a proper system of accountability. In addition, the increasing powers of regulatory agencies both in India and abroad call for maintenance of a system that will stand the scrutiny of any governmental agencies like Securities & Exchange Commission in the USA. In the wake of accounting scandals of Enron and WorldCom, Sarbanes-Oxley Act was passed in the USA, giving greater powers to the regulator, SEC. In India, Securities Exchange Board of India (SEBI) is also vested with a lot of powers regarding the financial intermediaries and listed companies. Where the institution involved is a banking institution, it should be able to stand the scrutiny of the Reserve Bank of India. If it is

operating in the financial market, the bank is subject to the scrutiny of SEBI, apart from the scrutiny of the RBI. (3) Liquidity Planning: The size of modern corporations has gone up either due to persistent capacity expansion, international operations or mergers and acquisitions. This brings about acute problems of cash flow. At every point of time, sufficient liquidity is to be ensured so that the corporate does not run into the problem of shortage of liquidity. To achieve this without sacrificing profitability, corporates are relying on investment in money market instruments more and more. For large-scale operations, the problem is always temporary shortages of cash and its surplus. Temporary shortages are to be met through additional sourcing of cash. Temporary surplus of cash has to be invested in order to avoid the presence of idle funds. (4) Portfolio Management: As the corporates are investing heavily in the capital market securities like equity shares, preference shares, bonds or debentures, portfolio management also becomes an important function of the Treasury. Right from the selection of the portfolio, its designing, continuous monitoring and constant churning for an active investment strategy, it is the Treasury that plays a vital role. Various risk management products in the form of derivatives are available in every type of organized market. In currency markets, stock markets, foreign exchange markets and also in credit markets, sophisticated techniques are available to manage the risk. These derivatives can also be used to increase the profit from operations in these organised markets. (5) Identification of Funding Agencies: With Liberalisation, funds are moving globally. The skill and the comprehensive effort in tapping the source of finance and funding agencies will bring down the cost of capital considerably. The Treasury Manager must work out various scenarios and the suitable fundagency matrix. In the future, this will reduce the time involved in the research in order to tap the source. Apart from the traditional sources like banks and international monetary organisations, there is a new breed of financiers in the form of venture capitalists, private equity partners, High Networth Individuals, Hedge Funds etc. The Treasury Manager has to establish and maintain contacts with every type of financiers in order to raise the funds readily and at a cheap cost. (6) Foreign Exchange Dealings: Certain industries like the Indian software industry, engineering industry, textiles and a host of others may be dependent upon exports. There are manufacturing industries, which are dependent upon import of raw materials like petroleum refineries, thermal power stations, and industries using base metals for their operations. There are also industries,

which are dependent upon both exports and imports, as in the case of polished diamonds industry. It involves both the receipts and payments only in foreign currencies. The values of the currencies are volatile. After liberalization of most of the economies, funds are moving very quickly from one set of countries to the other. In such a scenario, it is the functions of the Treasury to see that such fluctuations contribute to the profits of the corporate rather than becoming a loss. Unexpected fluctuations will make the firms to incur losses. Well-planned operations will provide for taking hedge against a possible loss in the future. (7) Planning for Organic & Inorganic Growth: It has become quite common that successful corporates are going on a global level expansion. They do it by way of organic growth (which is called Greenfield Project) in the form of capacity expansion. They may also do it by way of inorganic growth (known as Brownfield Project) through mergers and acquisitions. Both the routes call for mobilizing huge funds. Unlike in the normal operations, funds needed for organic and inorganic growth are required on a mammoth scale. There is also a trend with Indian companies like Tata Steel and Tata Tea taking over companies that are larger than the acquirers. Corus taken over by Tata Steel is bigger than the latter many times. The funds needed naturally are very huge in size. It may be on an unprecedented scale in the history of the company. The Treasury Manager must gear up for such challenges. The Treasury has to be ready with the funds as and when such an organic or inorganic growth takes place. In certain organisations, it takes place continuously and the Treasury must always be planning for raising resources again and again. (8) Risk Management for Derivatives: Many corporates cover every type of risk they are exposed to. Depending upon the nature of the organization like banking, manufacturing, security trading etc, risks exist in most of the operations. As long as the financial markets remained underdeveloped, the corporates had to bear the loss. With the International Organisation of Securities Commissions (IOSCO) bringing about uniformity in practices in financial markets and accounting practices, the facility is provided to the corporates to cover their risks through hedging and forward dealings. Treasury has the important task of such risk management. However, derivatives are not everyones cup of tea. It involves quite a lot of complicated computations and also a good amount of gut feeling. Otherwise, derivatives may contribute to heavy losses being incurred by the organisation.

Q.2 What is Qualified Institutional Placement? Do you think it is injustice on retail investors of the Company?

Qualified institutional placement (QIP) is a capital raising tool, primarily used in India, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares to a Qualified Institutional Buyer (QIB). Apart from preferential allotment, this is the only other speedy method of private placement whereby a listed company can issue shares or convertible securities to a select group of persons. QIP scores over other methods because the issuing firm does not have to undergo elaborate procedural requirements to raise this capital. To be able to engage in a QIP, companies need to fulfil certain criteria such as being listed on an exchange which has trading terminals across the country and having the minimum public shareholding requirements which are specified in their listing agreement. During the process of engaging in a QIP, the company needs to issue a minimum of 10% of the securities issued under the scheme to mutual funds. Moreover, it is mandatory for the company to ensure that there are at least two allottees, if the size of the issue is up to Rs 250 crore and at least five allottees if the company is issuing securities above Rs 250 crore. No individual allottee is allowed to have more than 50% of the total amount issued. Also no issue is allowed to a QIB who is related to the promoters of the company. Such a heavy investment restricts a retail investor.

Q.3 What is risk involved in investment in debt funds where more than 90% investment is in Government bonds? Which short term option (90days) you will choose for your Company for investment of liquid surplus and why.

Investment is putting money into something with the hope of profit. More specifically, investment is the commitment of money or capital to the purchase of financial instruments or other assets so as to gain profitable returns in the form of interest, income (dividends), or appreciation (capital gains) of the value of the instrument.[1] It is related to saving or deferring consumption. Investment

is involved in many areas of the economy, such as business management and finance no matter for households, firms, or governments. An investment involves the choice by an individual or an organization, such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time. Investment comes with the risk of the loss of the principal sum. The investment that has not been thoroughly analyzed can be highly risky with respect to the investment owner because the possibility of losing money is not within the owner's control. The difference between speculation and investment can be subtle. It depends on the investment owner's mind whether the purpose is for lending the resource to someone else for economic purpose or not. In the case of investment, rather than store the good produced or its money equivalent, the investor chooses to use that good either to create a durable consumer or producer good, or to lend the original saved good to another in exchange for either interest or a share of the profits. In the first case, the individual creates durable consumer goods, hoping the services from the good will make his life better. In the second, the individual becomes an entrepreneur using the resource to produce goods and services for others in the hope of a profitable sale. The third case describes a lender, and the fourth describes an investor in a share of the business. In each case, the consumer obtains a durable asset or investment, and accounts for that asset by recording an equivalent liability. As time passes, and both prices and interest rates change, the value of the asset and liability also change. An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it. The word originates in the Latin "vestis", meaning garment, and refers to the act of putting things (money or other claims to resources) into others' pockets.[4] The basic meaning of the term being an asset held to have some recurring or capital gains. It is an asset that is expected to give returns without any work on the asset per se. The term "investment" is used differently in economics and in finance. Economists refer to a real investment (such as a machine or a house), while financial economists refer to a financial asset, such as money that is put into a bank or the market, which may then be used to buy a real asset.