Overview of Financial Markets, Domestic and Euro Deposits

Functions of Bank Treasury

  1. Funding
  2. Lending
  3. Investment
  4. Foreign Exchange

Objective is to minimize funding and maximize returns

Three main activities


  • Develop and control operations
  • futures, options, forward rate agreements


  • Policies and procedures
  • way to trade and level of trade


  • Processing and reconciliation
  • accounts, custody of securities, systems, accounting, statutory returns

Structure of Bank Treasury Division

Dealing Room

  1. Spot desk
  2. Forward desk
  3. Money market desk
  4. Derivatives desk
  5. Corporate desk

Inter-relationship between various activities

Front office – Dealing

  1. Maintains and develops dealing operations
  2. evolve business
  3. Control operations
  4. Maintains and develops investment portfolio
  5. Utilize surplus funds
  6. Supported by middle and back office

Middle office – Control

  1. Monitors overall activity of trading desk
  2. Ensure all trades are recorded and front-office traders are not taking excessive risk
  3. Monitor profit and loss each trader is making
  4. Control risks relating to credit limits, liquidity, cash flows, interest rates
  5. Fraudulent activities

Back office – Settlement

  1. Records all trades and ensure settlement instruction are carried out
  2. Check contracts
  3. Reconcile nostro accounts
  4. Custody of securities, systems, accounting and statutory returns

Bank’s objective for operating in money market and foreign exchange market

Money Market

  1. To maintain liquidity
  2. To use excess funds
  3. To borrow necessary funds

Foreign exchange market

  1. To give the best possible service
  2. Manage a bank’s position
  3. Produce profits

Bank Treasury – Organization Structure

Treasury Manager

  • overall responsibility for the dealing room
  • decides strategy, markets and products
  • allocates financial limits and controls
  • has to make profit

Chief Dealers

  • ultimate control over teams
  • responsible for coordinating and controlling individual dealers
  • monitor all aspects of trading

Spot FX Dealers

  • trade in one of more chosen currencies
  • profits from speculation or executing transactions for clients
  • trade intra-day or overnight

Forward FX Dealers

  • long-term view
  • interest rate differential

Money Market Dealers

  • trade domestic or eurocurrency
  • provides 2 way quotes to maximize profits

Derivative Dealers

  • trade and quotes prices on a range of FX and MM instruments

Corporate Dealers

  • front line  representatives
  • needs MM rates, FX rates and derivative quotes
  • supply market information and advise



  1. Bring buyers and sellers together – commission
  2. Provides a communication network that links market participants
  3. Act as intermediaries between counterparties
  4. Find the best price for their clients


  1. Make quotations (bid and asked prices)
  2. Buy and sell on their own account (take positions)
  3. Most borrowers and lenders conduct transactions through dealers
  4. Price caller and Price quoter

Foreign Exchange and Money Market

  1. Largest markets in the world
  2. The Bank of International Settlement monitors activity (USD 1.4 trillion)
  3. Money market – short-term funding
  4. Foreign exchange – convert currencies

Reasons for movement of funds

  1. Interest arbitrage
  2. Speculation
  3. Capital flight
  4. Liquidity
  5. Trade and investment
  6. Hedging

Interbank Markets

  • Maintain reserve balances (requirements)
  • Excess funds land in the interbank market (usually overnight)
  • Unsecured basis
  • Highly liquid
  • Rates according to credit rating
  • Used to convert short-term loans into long-term loans

Interbank Offer Rates

  • Official benchmark provided by the central bank for overnight funding
  • LIBOR imitated by other financial centres
  • Each day several London banks are surveyed for their fixed date maturity lending

Eurocurrency deposits

  • A deposit traded outside its country of origin
  • Offshore deposit

Features and Characteristics

  1. Unregulated
  2. No reserve requirement
  3. Short-term
  4. Clean basis
  5. Non-negotiable, prematured or prepaid

Sources of Eurodeposits

  1. Private and high net worth customers
  2. Small and medium corporations
  3. Commercial banks
  4. International bodies
  5. Governments, Central banks

Criteria for a Major Financial Center

  1. Major financial institutions
  2. Sizeable market
  3. Good communications
  4. Related institutions
  5. Favorable regulations
  6. Widely accepted currency



2 Responses to “Overview of Financial Markets, Domestic and Euro Deposits”
  1. Faisal says:

    Nice stuff regarding Bank’s treasury..Good. Will appreciate if you can send me some more or share it with all. Will also thankful if you can share with me other resources.
    Best Regards,
    M. Faisal.

  2. jamesesz says:

    Thanks! I am a little busy recently..Due to a summer semester course in the UK..But I will be back active soon!

    Thanks for your support! Try clicking into the mindmap page..

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