Treasury & Fund Management Interactions between the Markets.

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Treasury & Fund Management Interactions between the Markets

The Nature of Cash Flows Cash Flows in a Commercial Bank and a Nonfinancial Business Inflows Outflows Commercial BankNonfinancial Business Receipt of a deposit from customerReceipt of proceeds from borrowings Receipt of repayment of a loan previously granted to customer Collection of an account receivable Termination of a deposit with another bank Termination of a deposit with a bank Purchase of currency Withdrawal of a deposit by a customer Repayment of borrowings Granting of a loan to a customerPayment of account payable Deposit of excess funds with another bank Deposit of excess funds with a bank Sale of Currency

Value Dates  Spot Transactions  Forward Transactions  Eligible Value Dates

Interactions Between The Money and Foreign Exchange Markets  A 3 Months deposit in PKR in the amount of Rs.80 million will be received.  A loan in USD in the amount of $1 million will be made with 3 Months maturity. Currency DateTransactionRs.$ June 30Deposit Received+ 80,000,000 Loan made- 1,000,000 Net Cash flows+ 80,000,000- 1,000,000 Sept. 30Deposit Termination - 80,000,000 – Interest Loan repayment+ 1,000,000 + Interest Net Cash Flows- 80,000,000 – Interest + 1,000,000 + Interest Net Exchange Position - Interest+ Interest

Operating in Money Market Currency DateTransactionRs.$ June 30Deposit Received+ 80,000,000 Funds Placement- 80,000,000 Loan made- 1,000,000 Borrowed Funds- 1,000,000 Net Cash flows00 Sept. 30Deposit Termination- 80,000,000 - Interest Placement Termination+80,000,000 + Interest Loan repayment+ 1,000,000 + Interest Borrowed Funds Repayment-1,000,000 - Interest Net Cash Flows0 + Interest 0 + Interest Net Exchange Position+ Interest

Operating in Foreign Exchange Market Currency DateTransactionRs.$ June 30Deposit Received+ 80,000,000 Loan made- 1,000,000 Sale of PKR against USD on spot market- 80,000,000+ 1,000,000 Purchase PKR against USD Value Date Sept. 30 NCF Net Cash flows00 Sept. 30Deposit Termination- 80,000,000 - Interest Loan repayment+ 1,000,000 + Interest Purchase PKR against USD from June 30 contract “estimated” + 80,000,000 “estimated” - 1,000,000 Net Cash Flowsestimation error - Interest estimation error + Interest Net Exchange Position- Interest