Islamic Banking & Finance Assignment Treasury Functions of a Conventional Bank & an Islamic Bank

Page1

IBF Assignment 2 Group 6

Treasury Function of a Conventional Bank: (Silk Bank) (Person Interviewed:) Treasury is a department is the money maker for an organization. Its primary role is to make money and keeping a track on the liquidity of the organization. Treasury of a ank does the same !o of making money ut it is slightly different to that of a company. It has five segments which operate independently yet !ointly to create money making opportunities. They are: ". #oney market $. %oreign e&change market '. %i&ed income (ale ). *quities +owever e&istence and classification of these segments will depend of the portfolio, deposits and market share of the -ank. ". Money Market: #oney #arket operates in .overnment securities such as onds,

treasury ills and certificates, it is regulated y the (tate -ank and it has functions of /#/ (open market operations), #/P 0P and 1uctions. /#/ means placing money in the market for anks to cover up their short2term position and usually happens when there is less liquidity in the market. 3hile #/P 0P is collecting money from the market when there is e&cess supply and less demand. $. Foreign E c!ange Market: %4 or foreign e&change market is the currency market where trading of foreign currency is done. %4 is roken down into two parts Inter ank and 5orporate (ales. Inter ank works on selling and uying currencies from other anks in the market whereas 5orporate sales provides rates of all kinds to its customers, these
Page2

IBF Assignment 2 Group 6

rates can e for imports, e&ports, foreign ill discounting, forwards ooking or simply remittances. '. Fi e" Income Sales: 1 fi&ed Income sale is selling .overnment securities to individuals who carry the capacity to invest in ills and onds. ). E#uities: It deals with the involvement in the stock market where uying and selling of shares takes place. $i#ui"ity Management: The treasury has to ensure that the liquidity level of the ank is maintained in a way that if tomorrow any depositor demands his money ank, the ank must have enough cash6liquid money availa le to give it to him. Treasury department does this y managing risk and time factor of the various lia ilities the ank has. -ased on the current account2holding information, it determines the diversity of accounts the ank must offer to the depositors. %or e&ample, if the liquidity position is strict and the ank is short of immediate, it would encourage to have more fi&ed deposits than demand deposits. Treasury Function of an Islamic Bank (%u&ai Islamic Bank): (Person Interviewed:) 7u ai Islamic -ank eing an Islamic ank is not allowed to trade in T2 ills or any other interest ased money market product y (hariah. That gives very little room for work in treasury in respect to product line. In %oreign *&change #arket: They do same transactions like conventional anks i.e. spot and forward clean deals. In #oney #arket: Islamic ank has een allowed to work in a product named commodity #ura ahah which is asset acked y commodity. In Investment: They uy (ukuks which are permitted y (hariah for e&ample 31P71 (ukuk, *ngro (ukuk, and ./P I!arah (ukuk etc.
Page2

IBF Assignment 2 Group 6

In *quity #arket: They are allowed to trade in T%5s (Term %inance 5ertificates) according to Prudential 8egulations 829 (5orporate and 5ommercial).

Page2