Role of Treasury

The Treasury department of a country plays a crucial role in the foreign exchange market. The main responsibilities of the Treasury department are to manage the country’s international reserves, monitor and manage foreign exchange risk, and provide foreign exchange market intervention when necessary.

International Reserves Management: The Treasury department manages the country’s international reserves, which include foreign currencies, gold, and other assets that can be used to settle international obligations or support the domestic currency. The Treasury department monitors the level of reserves and makes decisions on how to allocate and invest them to ensure the country’s financial stability.

Foreign Exchange Risk Management: The Treasury department also manages the country’s foreign exchange risk. This involves assessing and managing the risks associated with fluctuations in foreign exchange rates. The Treasury department may use various hedging instruments, such as options, forwards, and futures, to manage this risk. Foreign Exchange Market Intervention: The Treasury department can intervene in the foreign exchange market to influence the value of the country’s currency. This intervention can take various forms, such as buying or selling foreign currencies or adjusting interest rates. The aim of this intervention is to stabilize the currency and prevent excessive volatility or speculation in the foreign exchange market.

The role of treasury can be divided into three areas

It manages the bank’s balance sheet in terms of funding assets and liabilities and the Bank’s exchange and interest rate exposures. To fulfill this responsibility Treasury uses all the tools available to them in terms of products. These are from basic spot to interest rate swaps, and management information driven by the Bank’s core IT systems.
It actively creates risk positions to generate trading income. E.g. Foreign Exchange trading
It satisfies customer needs by offering an efficient and competitive service. E.g. Foreign exchange and other treasury products.