DFIN402 TREASURY MANAGEMENT JULY AUGUST 2025

Description

SESSION	JULY-AUGUST 2025
PROGRAM	MASTER OF BUSINESS ADMINISTRATION (MBA)
SEMESTER	IV
COURSE CODE & NAME	DFIN402  TREASURY MANAGEMENT

 

 

 

Assignment Set – 1

 

Q1. Explain the concept and importance of Liquidity Planning and Cash Management System in Treasury Management. Also discuss their contribution in maintaining the financial stability of an organisation.10     

Ans 1.

Liquidity Planning

Liquidity planning refers to the systematic process of forecasting, managing, and monitoring an organisation’s cash inflows and outflows to ensure that sufficient funds are available to meet short-term and long-term obligations as and when they arise. In treasury management, liquidity planning focuses on maintaining an optimal balance between profitability and solvency. Excess liquidity leads to idle funds and opportunity costs, while inadequate

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Q2. Critically evaluate how various forex and derivative treasury products help banks manage risks and optimise returns in the Indian financial system. Support your answer with suitable examples. 10      

Ans 2.

Role of Treasury Products in Banking Risk Management

In the Indian financial system, treasury departments of banks actively use foreign exchange and derivative products to manage market risks and enhance returns. These products help banks mitigate exposure to currency fluctuations, interest rate volatility, and liquidity mismatches while supporting income generation.

Banks operate in a dynamic environment influenced by global capital flows, exchange rate

 

 

Q3. Enumerate the major functions of financial markets. Choose any two functions and evaluate how they contribute to the efficiency and growth of the financial system in India, using relevant examples.  10           

Ans 3.

Major Functions of Financial Markets

Financial markets perform several essential functions that support the smooth functioning of an economy. The major functions include mobilising savings, facilitating capital formation, enabling price discovery of financial assets, providing liquidity to investors, supporting risk management, ensuring efficient allocation of resources, and promoting economic development. Through these functions, financial markets connect savers with borrowers and

 

 

Assignment Set – 2

 

 

Q4. Discuss the role of financial intermediaries in interest rate risk management. Illustrate your answer with suitable examples, and analyse their contribution to the economic growth of underdeveloped countries 10  

Ans 4.

Financial Intermediaries and Interest Rate Risk

Financial intermediaries are institutions that act as a bridge between savers and borrowers by mobilising funds and allocating them to productive uses. Banks, non-banking financial companies, insurance companies, mutual funds, and development financial institutions are major intermediaries. Interest rate risk arises due to fluctuations in market interest rates,

 

 

Q5. Explain the three types of foreign exchange risks—transaction risk, translation risk, and economic risk, and give suitable examples. Analyse the impact of foreign exchange risk on international businesses. 10      

Ans 5.

Foreign Exchange Risk

Foreign exchange risk refers to the possibility of financial losses arising due to fluctuations in exchange rates. International businesses operating across borders face uncertainty in cash flows, asset values, and profitability when currencies appreciate or depreciate. Foreign exchange risk affects export revenues, import costs, overseas investments, and consolidated financial performance.

Transaction Risk

Transaction risk arises from changes in exchange rates between the date a foreign currency

 

 

Q6. Tabulate the key differences between the Conservative, Aggressive, and Matching (Hedging) approaches to working capital management, considering financing sources, risk level, and profitability, and provide one example for each.      10

Ans 6.

Working Capital Financing Approaches

Working capital management involves deciding how current assets are financed using short-term and long-term sources. Firms adopt different financing approaches based on their risk tolerance, cost of capital, and profitability objectives. The three commonly used approaches are Conservative, Aggressive, and Matching (Hedging).

Comparison of Working Capital Financing Approaches

Basis

Conservative Approach

Aggressive Approach

Matching (Hedging) Approach