Managing finances is important. As much as it is true for an individual, it strictly applies to large banks and other financial firms to manage their finances.
It is tough to know how the market is going to behave the next day. No one knows what might be in demand and what might just vanish with a whimper.
It is due to this uncertainty and the risk that the financial sector is prone to, that three key features arise, vis a vis treasury management, forex management, and risk management. It is crucial, especially for banks, to have professionals who are a master of this trade. So, what exactly are these key things and how do they help the banks in maintaining their assets? Let’s find out.
The term forex constitutes the words foreign and exchange. So simply put, forex refers to the transaction that happens between countries with different currencies. For instance, if a trader ships apples to the US, he will get his payment in US Dollars. That money won’t be valid in India, and he has to get it exchanged at the current exchange rate. This exchange rate is ever fluctuating and can result in significant losses or profits to organizations. So, it becomes imperative to have a solid management at the back that has a know-how of the market to minimize losses in an ever changing market.
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Businesses involve risks, and it is crucial to be ready to take them and also avoid losses while doing so. It is the practice of identifying potential hazards in advance and counter ways to tackle them so that the organization doesn’t have to bear a sea of losses.
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If forex and risk management are two branches, then treasury management is the entire tree. It accounts for all the transactions that take place in a bank. It keeps in the check the assets at the disposal of a bank both regarding resources and cash. You might have heard of a ‘treasurer.' The primary task of a treasurer is to have specialized skills to handle tight money, escalating interest rates, and economic volatility.
