Get A Guide to Financial Institutions PDF

By Charles R. Geisst (auth.)

ISBN-10: 0333440463

ISBN-13: 9780333440469

ISBN-10: 1349188077

ISBN-13: 9781349188079

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TREASURY OPERATIONS The actual day-to-day operations of a bank in the marketplace are assigned to the treasury department. The purpose of this division is to ensure that a bank's reserves, cash on hand, and investment portfolio are invested at the highest rate of return possible given constrictions on the maturity length of the liquid or near liquid investments held. Cash on hand is usually placed in overnight funds while other monies are placed in short-term or government-backed securities exposing the institution to interest rate risk but not usually to credit risk.

Individuals or companies place money to be invested with the bank and it provides the expertise and executes the investment decision for which it charges a fee. The term 'fiduciary' enters here because the money is to be invested at the discretion of the bank on behalf of the individual rather than having the investor do the actual investing himself. In this respect, the bank acts as investment advisor to the client and also holds the securities in safekeeping. This is one area in which banks compete with many other investment organisations on an active basis for the right to manage the public's money, especially that of large institutional investors such as pension funds or insurance companies.

It is this fundamental function that makes a bank a financial intermediary, reallocating funds from those in surplus to those in need. The process of credit creation is not left entirely to banks' discretion, however. While the commercial decision concerning who may borrow and at what particular rate is solely within the bank's providence, the overall process is controlled by the monetary authorities, namely the central bank, of the country involved. This will be discussed in another section below because the amount of credit available in an economy at any point in time has a profound impact upon economic activity.

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A Guide to Financial Institutions by Charles R. Geisst (auth.)


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