Treasury Operations, Cash, and Payments
Treasury Operations, Cash, and Payments
This domain tests the mechanics of cash positioning, payment rails, settlement risk and intraday liquidity. Expect a headroom or sweep calculation plus a question on Herstatt risk, finality or ISO 20022 migration.
Cash management
Daily cash positioning aggregates bank balances, value-dated items and expected flows into a single funding requirement. Concentration structures: zero-balance accounts (physical sweep), target balancing, and notional pooling, which moves no cash but requires cross-guarantees and is not permitted in every jurisdiction. Trapped cash, withholding tax and local regulatory restrictions limit repatriation.
Payment systems
RTGS (Fedwire, T2, CHAPS) settles individual high-value payments in central bank money, in real time, with immediate finality. ACH and batch schemes are deferred net settlement: cheaper, and reversible. Instant and card schemes run continuously. SWIFT is messaging, not settlement. ISO 20022 (pacs.008, camt.053) replaces MT103 and MT940 with richer structured data and is now the dominant cross-border standard. CLS settles FX on a payment-versus-payment basis, removing principal (Herstatt) risk but not replacement cost.
Worked example
An account opens at $20m. By 14:00 treasury expects outflows of $35m and inflows of $18m. Committed intraday facility $15m; unencumbered collateral available for intraday repo $10m. Headroom = 20 + 18 + 15 + 10 - 35 = $28m. If the largest time-specific obligation is $30m falling due at 11:00, the daily total looks fine but timing is the binding constraint. Intraday liquidity is measured against the peak cumulative shortfall, not the end-of-day position, and inflows arriving after an obligation is due cannot fund it.
Traps
- Confusing RTGS finality with the revocability of ACH or card transactions.
- Describing SWIFT as a settlement system rather than a messaging network.
- Assuming CLS eliminates all FX settlement risk; replacement cost remains.
- Netting intraday inflows that arrive after the obligation falls due.
- Treating notional pooling as a movement of cash between accounts.