Treasury Operations and Risk Management
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Questions and Answers

What must a BSFI do if it cannot obtain sufficient information from a client?

  • Offer general financial advice instead
  • Request information from other financial institutions
  • Recommending a financial product anyway
  • Refrain from offering or recommending any financial product (correct)

Which of the following is a primary reason for assessing client suitability?

  • To foster cooperation from the client (correct)
  • To limit the number of transactions per client
  • To comply with internal policies
  • To increase the profitability of the institution

What must be done with client information before transacting in a new product?

  • Ignore if there are no changes
  • Document it in a general ledger
  • Review and update it (correct)
  • Share it with other financial institutions

How should technical or unfamiliar terms be managed during client interactions?

<p>Explain them as needed to prevent misunderstandings (A)</p> Signup and view all the answers

What evidence must a BSFI obtain for a legal entity entering into financial transactions?

<p>Authorization for transaction types (B)</p> Signup and view all the answers

What is the client responsible for regarding the information they provide to the BSFI?

<p>Providing all information correctly and timely (D)</p> Signup and view all the answers

What should be documented when there are changes to a client's information?

<p>The conversations and clarifications made with the client (C)</p> Signup and view all the answers

What controls should be implemented by a BSFI regarding client information?

<p>Strict confidentiality and security measures (D)</p> Signup and view all the answers

What must the client confirm in writing before proceeding with a transaction despite the BSFI's assessment?

<p>The client is informed of potential risks and protections lost. (C)</p> Signup and view all the answers

Which characteristic is NOT applicable to Government Securities (GS)?

<p>They offer lower yields compared to other investment instruments. (C)</p> Signup and view all the answers

What defines Treasury Bills (T-bills)?

<p>Short-term promissory notes issued by the National Government. (C)</p> Signup and view all the answers

Which statement is true regarding the trading of Government Securities?

<p>They are tradeable on a daily basis during market hours. (A)</p> Signup and view all the answers

What do Treasury Bills primarily represent?

<p>Short-term, zero-coupon debt instruments. (B)</p> Signup and view all the answers

What does the presence of the Philippine Dealing and Exchange Corporation (PDEx) ensure for Government Securities?

<p>Best available market prices for trading. (B)</p> Signup and view all the answers

Which of the following is NOT a requirement for a client wishing to waive protections offered by client suitability rules?

<p>Client paying a penalty for early termination. (A)</p> Signup and view all the answers

What is a major advantage of Government Securities mentioned in the content?

<p>They are highly liquid and marketable. (D)</p> Signup and view all the answers

What is the maximum original tenor for debt instruments issued by public or private corporations?

<p>25 years (C)</p> Signup and view all the answers

What is the minimum investment requirement for the secondary market?

<p>P200,000.00 (A)</p> Signup and view all the answers

Which of the following is true about corporate securities or corporate notes?

<p>They enjoy better yields than government securities. (A)</p> Signup and view all the answers

How frequently are interest payments made on these debt instruments?

<p>Quarterly (B)</p> Signup and view all the answers

What type of institutions are subject to a 20% withholding tax on coupon payments?

<p>For-profit organizations (C)</p> Signup and view all the answers

What is the primary responsibility of the board of directors in relation to governance?

<p>Establish standards of ethical behavior and governance (D)</p> Signup and view all the answers

Which of the following best describes the requirement to adopt a code of conduct?

<p>It must be binding, especially for risk-taking personnel (C)</p> Signup and view all the answers

How should treasury activities be conducted according to the proposed guidelines?

<p>Within a board-approved structure with strict controls (B)</p> Signup and view all the answers

What is an essential qualification for personnel in the Treasury unit?

<p>High integrity and expertise in financial instruments (D)</p> Signup and view all the answers

What does the effective separation between operational units in treasury activities ensure?

<p>Enhanced control and accountability within the structure (B)</p> Signup and view all the answers

What role does the management information system play in treasury activities?

<p>It enables comprehensive monitoring and timely reporting (B)</p> Signup and view all the answers

What should the scope of authority for personnel in the Treasury unit do?

<p>Be adequately defined, documented, and communicated (A)</p> Signup and view all the answers

Why is it important for the board of directors to ensure compliance with regulatory standards?

<p>To avoid penalties and uphold market integrity (B)</p> Signup and view all the answers

What characterizes complex products in financial markets?

<p>They involve terms and risks that are difficult for non-sophisticated clients to grasp. (B)</p> Signup and view all the answers

Which role primarily involves buying and selling securities for one's own account?

<p>Dealer (B)</p> Signup and view all the answers

What is a primary responsibility of BSFIs when selling financial products?

<p>To act with honesty, fairness, and professionalism. (A)</p> Signup and view all the answers

What should BSFIs ensure regarding the suitability of financial products for clients?

<p>The products must align with the client's financial objectives and risk tolerance. (C)</p> Signup and view all the answers

Which of the following is NOT a type of financial product mentioned?

<p>Foreign exchange (C)</p> Signup and view all the answers

What does 'securitization structures' refer to in the context of financial products?

<p>Financial products backed by pools of assets, such as mortgage-backed securities. (C)</p> Signup and view all the answers

What principle guides the policies and procedures set by BSFIs during sales and marketing activities?

<p>Proportionality (B)</p> Signup and view all the answers

Which statement best describes the information that BSFIs are required to provide to clients?

<p>It should be sufficient, accurate, and comprehensible. (D)</p> Signup and view all the answers

What is the primary characteristic of an aggressive client in terms of investment?

<p>They are willing to take on higher risks for potentially higher returns. (B)</p> Signup and view all the answers

What is required from a BSFI before recommending a product to a client?

<p>A comprehensive assessment of the client’s risk tolerance. (C)</p> Signup and view all the answers

How should a BSFI mitigate any limitations in their scoring system for client profiling?

<p>Through robust discussions with the client. (D)</p> Signup and view all the answers

What action is highly recommended for a BSFI to avoid disputes regarding suitability assessments?

<p>Require the client to sign conformity to the assessment. (B)</p> Signup and view all the answers

What should a BSFI include in its record of suitability assessments?

<p>Documentation of interviews and analyses conducted. (A)</p> Signup and view all the answers

Which product approach is allowed for a client with a previously assessed unsuitable profile?

<p>Insisting on transacting in a particular product despite assessment. (D)</p> Signup and view all the answers

What role does client sophistication and risk tolerance play in a BSFI’s operations?

<p>It guides the BSFI’s product offerings and required disclosures. (C)</p> Signup and view all the answers

What is the purpose of calibrating the client profiling scoring system for a BSFI?

<p>To ensure it consistently reflects appropriate results. (B)</p> Signup and view all the answers

Flashcards

BSFI Treasury Integrity

BSFI should conduct treasury activities with high integrity, following board-approved structures and strict controls.

Board Governance

The board sets the tone for good governance and ethical behavior for all employees.

Compliance Standards

Adherence to market conduct rules and regulations by the BSFI.

Code of Conduct

A binding code that guides Treasury personnel in upholding market integrity and professionalism.

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Separation of Functions

Treasury activities should be divided into distinct functions (e.g., asset-liability management, trading) to prevent conflicts of interest and enforce controls.

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Personnel Expertise

Treasury personnel must possess the necessary skills and knowledge to understand financial instruments, transactions, and compliance with trading practices.

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Transaction Review Process

Comprehensive process to confirm transactions comply with BSFI accepted trading practices, beyond origination.

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Board-Approved Structure

A structure that enables successful achievement of BSFI objectives while maintaining stringent controls.

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Financial Products

Various investment instruments, including debt securities (bonds), equity securities (stocks), hybrid securities (convertible bonds), derivatives (options, futures), and securitization structures (mortgage-backed securities).

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Broker

A person who buys and sells securities for others.

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Dealer

A person who buys and sells securities for their own account.

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Complex Products

Financial products with complicated terms, features, and risks, often not easily understood by average investors.

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BSFI Responsibilities

Banks, Securities Firms, and Insurance Companies (BSFIs) must act honestly, fairly, and professionally, prioritizing client best interests.

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Client Suitability

BSFIs must ensure offered products align with client's financial goals and risk tolerance.

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Product Information

BSFIs must provide clear, accurate, and balanced information about product risks to enable informed client decisions.

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Sophistication Differentiation

BSFIs must tailor engagement methods based on client sophistication levels (less vs. more sophisticated)

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Regulatory constraints

Laws, rules, and regulations that limit a client's financial activities.

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Liquidity needs

A client's need to convert investments into cash and the timing of that need.

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Client Information Importance

BSFIs must obtain sufficient client information to assess suitability before offering financial products.

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Client Information Collection

BSFIs can use questionnaires and interviews to gather client information, but they must be clear and understandable.

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Client Information Review

BSFIs must review and update client information when they transact in a new product or there are significant life changes.

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Confidentiality and Security

BSFIs must have strong controls to protect the confidentiality and security of client information.

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Authorizing Legal Entities

When working with legal entities, BSFIs must verify the entity's authority to transact and ensure the representative is authorized.

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Client Classification

Clients are categorized based on their financial situation and risk tolerance.

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Risk Tolerance

A client's willingness to accept potential losses for higher returns. Aggressive clients are willing to take on more risk.

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Client Sophistication

A client's understanding of financial products and markets. Sophisticated clients have more knowledge and experience.

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Suitability Review

A process to ensure a financial product aligns with a client's needs, risk tolerance, and financial situation.

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Client Mandate

A statement of a client's investment goals and objectives.

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Product Disclosure

Providing a client with clear information about a product's features, risks, and potential returns.

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Client Profile

A summary of a client's risk tolerance, investment objectives, and financial situation.

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Alternative Products

Other financial products that may be suitable for a client based on their profile.

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Client Consent

A client's agreement in writing to the suitability assessment and the information used to create it.

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Government Securities (GS)

Debt instruments issued by the Philippines government to finance public spending. They are considered the safest investment due to being backed by the full taxing power of the government, making them practically default-free.

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Scripless Securities

Securities registered electronically under the National Registry of Scripless Securities (NRoSS) system. This means they don't exist in physical form as paper certificates.

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Treasury Bills (T-bills)

Short-term promissory notes issued by the National Government. They are direct, unconditional, and fully-guaranteed obligations of the Philippine government.

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Zero-Coupon Debt Instrument

A bond that doesn't pay regular interest payments but instead is sold at a discount to its face value. Investors earn interest when they redeem the bond at its face value at maturity.

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Market Risk for GS

The potential for loss due to changes in interest rates. While the principal is safe, the value of the security can fluctuate with market interest rate movements.

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PDEx: Philippine Dealing and Exchange Corporation

An organized, transparent fixed-income exchange where Government Securities are traded. It ensures market participants get the best price available for their securities.

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Secondary Market for GS

A market where investors can buy or sell Government Securities previously issued. This provides liquidity and allows investors to trade anytime.

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Trading Hours for GS

The Philippine market for Government Securities is open every day, from Monday to Friday, 9:00 am to 12:00 nn and 2:00 to 4:00 pm.

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Retail Treasury Bonds (RTBs)

A specific type of Government Security (GS) designed for individual investors. They offer a fixed interest rate and a fixed maturity date.

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Fixed Rate Treasury Notes (FXTNs)

Government Securities (GS) with a fixed interest rate and maturities ranging from 2 to 10 years. They provide a predictable income stream and are a popular investment option for institutions and individuals.

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Philippine Dealing and Exchange (PDEx)

A trading platform where government securities (GS) are bought and sold. It enables investors to trade GS efficiently and transparently.

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Study Notes

Treasury Operation

  • Treasury is also known as the bank's market division
  • It meets individual and institutional customer investment and risk coverage needs
  • Four fundamental pillars: technology, products, distribution channels, and capability to manage and hedge risks
  • Technology is crucial for real-time market information, product pricing, and risk calculation, facilitating operations confirmation and liquidation
  • Products offered cover a wide range of financial assets, including structured products, fixed income, interest rates, equities, and exchange rates
  • Distribution channels enable products to be offered at competitive prices and locations
  • Operational risks arise from processes, people, systems and external events in addition to market, liquidity, and credit risks
  • Increased exposure to reputational risk from faulty product design, unethical practices, and failures to meet professional obligations to clients
  • Operational risk management framework includes governance structure, policies/procedures, effective internal controls, reliable MI system, and a robust process for dealing with clients.
  • BSFI treasury activities should maintain high integrity with a strong internal controls framework
  • Board of Directors are primarily responsible for establishing the tone of integrity
  • Front office personnel are responsible for transactions
  • Risk control function is responsible for transaction reviews
  • Back office responsible for settlement, confirmation, reconciliations and related processes
  • Financial products, especially complex ones, require clearly communicated strategies for sale and marketing
  • Client suitability processes are essential to determine appropriate financial products for individual client needs
  • Client information includes investment/funds, financial situation knowledge of products and experience
  • Client objectives, risk appetite, holding period, and legal-regulatory constraints must be considered

Financial Products

  • Financial products include debt securities (bonds), equity securities (stocks), and hybrid securities (convertible bonds)
  • Derivatives and securitization structures are other financial products.
  • BSFI's responsibilities include acting honestly, fairly, using professionalism, pursuing best interests of clients, and managing risks arising from activities

Client Suitability Processes

  • The process involves obtaining, classifying client information according to financial sophistication and risk tolerance, conducting a suitability review
  • Identifying the client's financial situation, needs, objectives, risk tolerance, and knowledge of financial markets and products
  • Client classifications include market counterparties, sophisticated institutional clients, sophisticated individuals clients, and other clients

Government Securities

  • Government securities are debt instruments issued by the Republic of the Philippines to finance public expenditures
  • Types include Treasury Bills (T-bills), Fixed Rate Treasury Notes (FXTNs), and Retail Treasury Bonds (RTBs)
  • They are considered the safest investment due to their backing by the full taxing power of the government
  • They vary in terms maturity date, interest, and other characteristics

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Lesson 8: Treasury Operation PDF

Description

This quiz explores the essential functions of treasury operations within banking, including its role in meeting customer investment needs and managing operational risks. It highlights the four pillars of treasury—technology, products, distribution channels, and risk management—while discussing various financial products and their implications for institutional and individual investors.

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