Trade Finance BD · TMFI study pack
Trade Finance BD · Original revision handnote · Edition 2026.1

TMFI — Treasury Management in Financial Institutions

AIBB · Optional · 14 October 2026

Manage funding, interest-rate and foreign-exchange exposures with disciplined treasury controls.

Use this revision pack with the full syllabus and official papers. Important topics are revision priorities, not a promise of future questions.

Contents

  1. A · Integrated treasury
  2. B · Money markets and reserves
  3. C · Foreign-exchange dealing
  4. D · ALCO and funding resilience
  5. E · Derivatives
  6. F · Fixed-income valuation
  7. G · Treasury risk and prudential control
  8. Worked example
  9. Applied case and model response
  10. Terminology
  11. Official syllabus and papers

Revision priorities

Liquidity, ALCO and FX dealing — Syllabus priority. Editorial judgement based on syllabus importance.

Bond valuation, duration and derivatives — Syllabus priority. Editorial judgement based on syllabus importance.

Syllabus-mapped handnotes

Module A

Integrated treasury

Syllabus scope: Money market; FX; ALM; treasury objectives and organisation

Treasury coordinates funding, liquidity, investments and market exposures within approved limits. Integrated management avoids one desk’s apparent profit creating another desk’s hidden risk. Distinguish a proprietary position from customer-driven dealing and liquidity investment. Treasury performance should reflect funding cost, risk, capital and control quality. A well-defined mandate states instruments, counterparties, limits and permitted activities. The balance sheet’s needs should drive decisions, rather than a target to maximise dealing income regardless of liquidity or exposure.

Apply it in banking

A high-yield investment may lock funds beyond expected withdrawals. Compare its return with the resulting liquidity and market risks.

Practice question: Explain integrated treasury and its relationship with bank-wide asset–liability management.

Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.

Module B

Money markets and reserves

Syllabus scope: DTL; CRR/SLR; call money; repo; bills; bonds; swaps

Money markets support short-term liquidity and price discovery. A repo combines a sale and agreed repurchase structure; collateral, haircut, maturity and counterparty arrangements matter. Treasury bills are normally discounted instruments; bonds generally involve longer maturities and specified coupon terms. Reserve calculations require the current regulatory base, rate and reporting convention. A swap exchanges agreed cash-flow obligations and can change exposure without eliminating credit or operational risk. Distinguish routine funding from emergency reliance that exposes a weak liquidity model.

Apply it in banking

For a seven-day repo, state amount, rate, day-count basis and interest calculation. Do not use the syllabus’s old rate as a current policy rate.

Practice question: Compare call funding, repo and treasury securities in liquidity management.

Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.

Module C

Foreign-exchange dealing

Syllabus scope: Quote conventions; cross rates; buying/selling; positions; controls

A quotation must specify currency units and the bank’s side. The bid is the price at which the dealer buys the quoted base currency; the offer is the price at which it sells it under the stated convention. Derive cross rates by matching and cancelling units, using appropriate sides when executable quotes are required. A net open position arises when currency assets, liabilities and qualifying commitments do not offset. Customer trades create settlement and operational exposures even if market positions are hedged. Record confirmations, limits, counterparties and reconciliations.

Apply it in banking

If a bank sells USD forward to a customer, identify its resulting short USD exposure and the hedge needed. A matched amount with a different maturity may still leave risk.

Practice question: Explain quote sides and control a customer-driven FX transaction.

Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.

Module D

ALCO and funding resilience

Syllabus scope: Liquidity; LCR/NSFR; advance/deposit measures; contingency; front/middle/back office; FTP

ALCO coordinates interest-rate, liquidity, funding and balance-sheet decisions. Front office executes within limits; middle office independently measures and monitors risk; back office confirms, settles and reconciles. Funds transfer pricing allocates funding and liquidity cost to businesses, improving comparable product decisions. Analyse contractual and behavioural cash flows, deposit concentration and contingent draws. A contingency funding plan needs triggers, owners and feasible funding sources under stress. A ratio is useful evidence, but it does not replace analysis of the time and concentration of actual cash flows.

Apply it in banking

Test whether a planned emergency asset sale remains feasible when market prices and collateral values fall together.

Practice question: Design an ALCO response to deposit concentration and short-term funding pressure.

Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.

Module E

Derivatives

Syllabus scope: Forward; futures; options; interest/FX/commodity/credit exposures

A forward creates a bilateral obligation on agreed terms; a futures contract is standardised and normally subject to margining. An option gives its holder a right, with a premium and defined exercise terms. A swap exchanges specified cash flows. Hedging reduces a chosen exposure but may retain basis, liquidity, counterparty and operational risk. Margin calls can create cash pressure even when the hedge offsets an economic loss elsewhere. Match the instrument to amount, maturity and exposure, and establish authority, valuation and reporting controls.

Apply it in banking

An importer buying a currency option pays a premium for protection while retaining upside. Compare that flexibility with a forward’s fixed obligation.

Practice question: Compare forwards, futures, options and swaps and explain residual hedging risk.

Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.

Module F

Fixed-income valuation

Syllabus scope: Price; yield; duration; convexity; dealers; auctions; benchmark rates

A bond price is the present value of coupons and principal discounted at the relevant yield. Price and yield generally move in opposite directions for a fixed-rate bond. Macaulay duration measures weighted cash-flow timing; modified duration approximates percentage price sensitivity to a small yield change. Convexity refines the approximation for larger changes. Distinguish coupon rate from yield and account for accrued interest and quotation conventions. Auctions and dealer markets have allocation, settlement and conduct rules; apply the current framework when specific local practices are requested.

Apply it in banking

A long-duration bond can lose value materially when yields rise, even if the issuer continues paying coupons. Separate market risk from default risk.

Practice question: Explain bond price, yield and duration in treasury investment decisions.

Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.

Module G

Treasury risk and prudential control

Syllabus scope: Interest/FX risk; capital; counterparty/exposure limits; Basel; settlement

Treasury controls address market loss, credit exposure, liquidity and failed settlement. Set position, sensitivity, stop-loss and counterparty limits appropriate to the mandate. Stress correlated changes and valuation assumptions; daily profit can hide a large tail exposure. Separate trade execution from confirmation, valuation and settlement. Capital measures help absorb losses but do not guarantee payment liquidity. Investigate limit breaches promptly and document actions. Avoid window dressing at reporting dates; good treasury control operates throughout the period.

Apply it in banking

A dealer reporting unexplained profits while avoiding independent confirmations creates an operational and fraud concern as well as a market-risk issue.

Practice question: Prepare a treasury risk-control framework with independent monitoring and escalation.

Answer framework: use the explanation above, add the banking example, then address assumptions and controls. Expand to match the question’s marks and command words.

Worked example

Duration approximation

A fixed-rate bond portfolio is worth BDT 200 crore and has modified duration 4.2. Yields rise by 0.50 percentage point. Estimate the value change using duration only.

  1. Yield change Δy = 0.005 in decimal form.
  2. Approximate ΔP/P = −Dmod×Δy = −4.2×0.005 = −2.1%.
  3. Estimated value change = −200×2.1% = −BDT 4.2 crore.
  4. Estimated new value ≈ BDT 195.8 crore. Convexity, cash flows and non-parallel curve changes may alter the actual result.
Common mistake: Use modified duration here. Do not enter 0.50 instead of 0.005 for the yield change.

Case clinic

A profitable hedge creates a cash gap

A bank uses futures to hedge its bond portfolio. Market movements trigger margin calls while customer withdrawals rise. Explain why the hedge does not remove the liquidity problem.

Model response

The hedge can offset market-value risk while requiring cash collateral earlier than the underlying portfolio generates cash. Basis and timing differences may also remain.

Treasury should quantify margin scenarios, withdrawal stress, available collateral and settlement obligations. Use an authorised liquidity buffer and contingency plan rather than unwinding trades blindly.

ALCO and Risk should assess whether hedge size, instrument and funding capacity match appetite. Maintain independent valuations and settlement controls, and revise limits if stress liquidity is inadequate.

Practice marking guide · 20 marks
  • Distinguish market and liquidity risk (6)
  • Quantify cash obligations (4)
  • Proportionate funding response (6)
  • Governance and monitoring (4)

Terminology and comparisons

Coupon / yieldContractual coupon relative to face value versus return implied by price and cash flows.
Macaulay / modified durationWeighted cash-flow timing versus a related measure of yield sensitivity.
Forward / optionAn obligation to transact versus the holder’s contractual right.
Front / middle / back officeExecution versus independent risk monitoring versus confirmation, settlement and reconciliation.

Official references

Official papers are linked for comparison; their full text and official model answers are not reproduced. This pack’s explanations, examples and cases are original. Numerical examples are practice assumptions. Current law, instructions and subsequent amendments must be checked for regulatory answers.