In financial markets, transactions can take place either Over-the-Counter (OTC) or through an Exchange. These represent two distinct methods of buying and selling securities and derivatives, each with its own characteristics, regulatory framework, and risk profile. Key Differences Feature Over-the-Counter (OTC) Exchange-Traded Definition A decentralized market where trades are conducted directly between two parties. A…
Treasury operations, particularly within financial institutions and large corporations, frequently utilize derivatives to manage financial risks and, in some cases, to generate profits. Derivatives are financial contracts whose value is derived from an underlying asset, such as interest rates, currencies, commodities, or market indices. These instruments are integral to modern treasury management, enabling organizations to…
A derivative product is a financial instrument whose value is derived from the value of an underlying asset, a group of assets, or a benchmark. Common underlying assets include stocks, bonds, commodities, currencies, interest rates, and market indices. Derivatives serve various purposes, such as hedging against risk, speculating on price movements, and leveraging investment positions.…
Treasury risk management refers to the systematic process of identifying, assessing, and mitigating financial risks that may adversely affect an organization’s cash flow, investments, and overall financial stability. It encompasses the implementation of proactive strategies and internal controls aimed at preserving financial resources and ensuring the organization’s ability to meet its financial obligations. Key Components…
Treasury supervision and control encompass the oversight of an organization’s financial assets, liquidity, and risk exposures to ensure efficient fund utilization, financial stability, and sound cash flow management. Effective treasury management involves a broad range of responsibilities, including cash and liquidity management, financial risk assessment, strategic planning, and regulatory compliance. Key Aspects of Treasury Supervision…
Derivatives are financial instruments whose value is derived from an underlying asset, such as a stock, commodity, currency, or interest rate. They are widely used in financial markets for hedging risks and speculating on price movements. In the context of risk management, derivatives serve as powerful tools to mitigate exposure to adverse price changes, manage…
IntroductionMarket risk mitigation is a critical function in banking, aimed at identifying, measuring, and mitigating potential losses arising from adverse movements in financial markets. These risks include fluctuations in interest rates, foreign exchange rates, equity prices, and commodity prices. To manage these effectively, banks implement comprehensive risk management frameworks that combine internal policies with regulatory…
Value at Risk (VaR) and Duration are both widely used financial risk measures; however, they assess different dimensions of risk. While VaR provides a general estimate of potential losses in a portfolio over a specified time horizon, Duration specifically measures the sensitivity of bond prices to changes in interest rates. Understanding both is essential for…
The Liquidity Adjustment Facility (LAF) is a vital monetary policy instrument used by the Reserve Bank of India (RBI) to regulate liquidity in the banking system and influence short-term interest rates. It allows banks to address their daily liquidity requirements by borrowing from or lending to the RBI. Through LAF, the RBI ensures stability in…
Credit risk mitigation refers to the strategic measures and techniques employed by lenders to reduce potential financial losses resulting from borrower defaults. These practices are essential for safeguarding institutional capital, enhancing portfolio quality, and maintaining long-term financial stability. Effective credit risk mitigation involves comprehensive risk assessment, prudent loan structuring, and proactive monitoring and management. Key…
