25/11/2019
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Treasury Operations: Managing Intraday Liquidity
Treasury managers start each day with a best efforts cash flow forecast of known and likely cash inflows and outflows.
Actions may be taken to ensure that there are sufficient funds to meet any obligations and shortfalls.
Managers ensure and strive to end of day balance with a positive day balance.
Here is what an ideal end of day balance looks like.
Available funds (Start of the day) + Funds In (during the day) – Funds out (during the day) > 0
For example
Start of the day fund: 50m
Funds In: +150m
Funds out: -175m
Positive day balance: +25m
Ensuring positive day balance might seem relatively straight forward.
But there are some potential issues the managers can expect.
1) Unpredictability
2) Timing
Unpredictability
Only Start of the day balance are known.
Actual intraday payments can diverge from estimate possibly sizeable amount. This can result in significant shortfall or surplus.
This is what could happen.
For example
Start of day fund: +50m
Actual Funds in: +100m
Actual Funds out: -200m
End of day balance: -50m
Timing
Timing of intraday payments can be unknown.
May be funds out have to be made before funds in are received. Therefore, the bank managers must address the shortfall issue even if the intraday balance is expected to be positive.
To keep ahead, treasury managers need up-to-date and preferably real-time information on payments in and out and account balances.
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