CAIIB · BFM

Treasury risk management

Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Bank Financial Management — CAIIB.

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What is treasury risk management in the context of a bank?

Treasury risk management refers to the identification, measurement, monitoring, and control of risks arising from a bank's treasury operations, including market risk, liquidity risk, credit risk, and operational risk.

What is 'Overnight Risk' in treasury operations?

Risk from positions held open beyond the trading day.

Which types of risk are primarily associated with treasury operations?

Treasury operations primarily face market risk (interest rate, forex, and equity price risk), liquidity risk, credit/counterparty risk, and operational risk.

What is the purpose of a 'Dealing Mandate' in treasury risk management?

It sets the authority and limits for each trader's transactions.

What is market risk in treasury management?

Market risk is the risk of loss arising from adverse movements in market prices such as interest rates, foreign exchange rates, equity prices, or commodity prices affecting a bank's treasury portfolio.

What is 'Credit Risk' in the context of treasury investments?

Risk of issuer defaulting on bond or instrument payments.

What does Value at Risk (VaR) measure in treasury risk management?

VaR measures the maximum potential loss on a portfolio over a specified time horizon at a given confidence level (e.g., 99% confidence over one day), helping banks quantify market risk exposure.

What does 'Duration' measure in a fixed income portfolio?

Sensitivity of bond price to changes in interest rates.

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