NIBAF CTM cheat sheet

Treasury governance rests on three lines of defence: dealing/execution, independent risk and compliance oversight, and internal audit assurance.

Segregation of duties requires that the dealer who executes a transaction cannot also confirm it, settle it, or revalue it in the ledger.

A treasury policy manual must define permitted instruments, counterparty limits, tenor limits, stop-loss triggers, and delegated authority levels.

Delegation of authority is documented by position, not by name, so limits survive staff turnover; limits are reviewed at least annually.

Front office = dealing and position taking; middle office = independent valuation, limit monitoring, and P&L reporting; back office = confirmation, settlement, and reconciliation.

The treasury mandate should state explicitly whether treasury is a cost centre (hedging only) or a profit centre (permitted proprietary risk), since this drives limit design.

Counterparty credit limits are set by an independent credit function and monitored daily against aggregate exposure, including potential future exposure on derivatives.

Board-level oversight typically flows through an Asset-Liability Committee (ALCO) or Treasury Committee that approves policy, limits, and funding strategy.

Liquidity Coverage Ratio (LCR) = High-Quality Liquid Assets / net cash outflows over 30 calendar days; Basel minimum is 100%.

Net Stable Funding Ratio (NSFR) = Available Stable Funding / Required Stable Funding; Basel minimum is 100% and the horizon is one year.

Cash flow forecasts are layered by horizon: daily (0-7 days, operational), weekly (1-3 months, tactical), and annual (strategic/capital planning).

Forecast accuracy is measured as variance between projected and actual flows; persistent bias in one direction signals a structural funding or collection issue.

A liquidity buffer must be sized to survive a stress horizon with no wholesale market access; stress scenarios include name crisis, market-wide crisis, and combined.

Cash pooling (notional or physical) offsets subsidiary surpluses and deficits to reduce gross external borrowing; cross-border pooling may trigger tax and regulatory constraints.

Contingency Funding Plan (CFP) defines early warning indicators, trigger escalation, and pre-approved funding sources activated when limits are breached.

Sources and uses of liquidity must be matched by currency: a surplus in one currency does not fund a deficit in another without an FX swap.

Cash Conversion Cycle (CCC) = Days Inventory Outstanding + Days Sales Outstanding - Days Payables Outstanding.

Days Sales Outstanding (DSO) = (Average Accounts Receivable / Credit Sales) x 365; lower DSO frees cash.

Days Inventory Outstanding (DIO) = (Average Inventory / Cost of Goods Sold) x 365; Days Payables Outstanding (DPO) = (Average Accounts Payable / COGS) x 365.

A negative CCC means the business is funded by suppliers and customers rather than by its own capital; common in retail and subscription models.

Working capital gap = current assets minus current liabilities excluding short-term debt; it measures the permanent funding need of the operating cycle.

Factoring transfers receivables at a discount; reverse factoring extends supplier payment terms while a bank pays the supplier early, improving DPO without stressing the supplier.

Early payment discounts should be evaluated against the cost of capital: annualised benefit = (discount % / (1 - discount %)) x (365 / days saved).

Inventory management levers include safety stock recalibration, ABC classification, and lead-time reduction; each directly reduces DIO and cash tied up.

Money market instruments have original maturities of one year or less and are typically quoted on a discount or add-on yield basis.

Bank discount yield = (Discount / Face) x (360 / days to maturity); it understates the true return because it uses face value, not price, as the base.

Bond-equivalent (investment) yield = (Discount / Price) x (365 / days to maturity); it exceeds the discount yield for the same instrument.

Certificate of deposit, commercial paper, treasury bill, repurchase agreement, and banker's acceptance are the core short-term funding instruments.

In a repurchase agreement the seller sells securities and commits to repurchase at a set price; the haircut protects the cash lender against price moves.

Interbank rates (e.g. SOFR, EURIBOR) anchor floating-rate pricing; a basis point is 0.01% and a typical money market quote convention differs by currency.

Rollover risk arises when short-term funding must be refinanced repeatedly; it is mitigated by extending tenor or diversifying investor and instrument base.

Commercial paper issuers typically need a backup liquidity line to obtain a top short-term rating and to cover rollover in a market closure.

Cost of debt is stated after tax: kd(after tax) = pre-tax yield x (1 - corporate tax rate).

Weighted Average Cost of Capital (WACC) = (E/V) x ke + (D/V) x kd x (1 - t), where V = E + D at market values.

Cost of equity via CAPM: ke = risk-free rate + beta x equity risk premium; beta measures systematic risk relative to the market.

Debt covenants (maintenance vs incurrence) constrain leverage, interest cover, and dividend payments; breach can trigger acceleration.

Bond issuance considerations include coupon structure (fixed vs floating), tenor, callability, ranking (senior/secured), and listing venue.

Credit rating agencies assess business risk and financial risk; a downgrade raises funding cost and can force collateral posting under derivative contracts.

Equity issuance dilutes existing shareholders; rights issues, private placements, and initial public offerings differ in dilution, speed, and regulatory burden.

Debt maturity profile should be laddered to avoid concentration of refinancing in any single year, reducing refinancing risk.

Transaction exposure: FX risk on known future cash flows; translation exposure: accounting effect of restating foreign subsidiary accounts; economic exposure: effect on long-run competitiveness.

A forward contract locks an exchange rate for a future date; the forward rate reflects the interest rate differential via covered interest parity.

Interest rate parity: F/S = (1 + r_quote) / (1 + r_base); the higher-yielding currency trades at a forward discount.

A money market hedge replicates a forward by borrowing in one currency, converting spot, and investing in the other.

Interest rate swaps exchange fixed for floating payments; a receive-fixed swap gains value when market rates fall.

Purchasing power parity links spot FX changes to relative inflation: expected spot change approximates the inflation differential.

Hedging ratio and hedge horizon must be defined in policy; over-hedging beyond underlying exposure creates speculative positions.

Natural hedging matches revenues and costs in the same currency; residual exposure after netting is what must be hedged externally.

Duration measures price sensitivity to yield: % price change ≈ -modified duration x change in yield; convexity corrects for larger yield moves.

Duration gap = asset duration - (liabilities/market value of assets) x liability duration; a positive gap means assets are more rate-sensitive than liabilities.

Immunisation matches asset duration to the investment horizon so that reinvestment risk and price risk offset for a single liability.

Liquidity gap analysis buckets assets and liabilities by contractual and behavioural maturity to reveal funding shortfalls.

ALM seeks to align the repricing profile of assets and liabilities; a rate-sensitive gap position profits from rising rates if assets reprice faster.

Value at Risk (VaR) estimates the maximum loss at a confidence level over a horizon; it does not describe the size of losses beyond that threshold.

Investment policy should state permitted asset classes, credit quality floors, concentration limits, and benchmark-relative objectives.

Held-to-maturity, available-for-sale, and fair-value-through-P&L classifications differ in how unrealised gains and losses affect capital.

Straight-through processing (STP) reduces manual intervention between trade capture, confirmation, and settlement, lowering operational risk.

T+2 settlement is standard for many cash securities; FX spot conventionally settles T+2, with T+1 increasingly adopted in some markets.

A nostro account is held with a correspondent bank in a foreign currency; a vostro account is the correspondent's view of the same relationship.

Reconciliation must be performed daily between treasury system positions, bank statements, and general ledger, with breaks aged and escalated.

Know Your Customer (KYC) and Anti-Money Laundering (AML) checks are mandatory before onboarding counterparties and on periodic review.

Regulatory reporting obligations include large-exposure limits, capital adequacy returns, and derivative trade reporting to a trade repository.

Payment fraud controls include dual authorisation, call-back verification for new bank details, and segregation of payment initiation from approval.

Business continuity plans for treasury must cover alternate dealing locations, backup payment channels, and delegated authority if key staff are unavailable.

A conflict of interest exists when personal interest or a related-party relationship can influence a treasury decision; it must be disclosed and the person recused.

Market abuse includes insider dealing, front running, and spoofing; treasury staff with knowledge of undisclosed funding or M&A plans are restricted persons.

Confidentiality obligations survive leaving the employer; counterparty pricing and unannounced transactions are material non-public information.

Gifts and entertainment must fall within a documented threshold and be recorded in a register; inducements that could influence dealing are prohibited.

Best execution for a client order requires diligence on price, speed, and likelihood of settlement, with records evidencing how the venue was chosen.

Whistleblowing channels should allow confidential reporting of control breaches without retaliation; treasury staff have a duty to escalate suspected fraud.

Personal account dealing in instruments the treasury desk trades is typically restricted or requires pre-clearance to prevent conflicts.

Professional codes require competence, integrity, and transparency with regulators; misstatements to a supervisor are a disciplinary and often criminal matter.