finance risk/treasury 101 Mb

Treasury

The department responsible for ensuring an organization has enough cash to meet its obligations while investing excess funds and supporting financing activities.

Why it Matters:
Keeps money available when needed while maximizing returns on cash that is not immediately required.

Liquidity

The ease with which cash can be accessed or assets can be converted into cash without significantly affecting their value.

Why it Matters:
Allows an organization to meet obligations, settle trades, and respond quickly to opportunities.

Portfolio Manager

A professional responsible for selecting, buying, selling, and overseeing investments on behalf of a fund or clients.

Why it Matters:
Makes investment decisions that Treasury supports through funding and cash management.

Liquidity management

The process of balancing available cash with short-term investments to ensure funds are accessible when needed.

Why it Matters:
Helps prevent cash shortages while maximizing returns on idle funds.

Cash flow

The movement of money into and out of an organization over a period of time.

Why it Matters:
Helps determine whether additional funding is needed or excess cash can be invested.

Cash Forecasting

The process of estimating future cash receipts and payments.

Why it Matters:
Allows better planning for investments, funding, and upcoming obligations.

Financing

The act of obtaining money to support investments, operations, or other business activities.

Why it Matters:
Provides the capital needed to fund growth and investment opportunities.

Funding

Providing money to satisfy financial obligations or complete transactions.

Why it Matters:
Ensures obligations and trades can be completed on time.

Working capital

The resources available after subtracting short-term liabilities from short-term assets.

Why it Matters:
Measures an organization’s ability to meet its short-term financial obligations.

Short term investing

Temporarily placing available cash into investments that mature quickly while preserving safety and liquidity.

Why it Matters:
Generates additional income without locking up cash for long periods.

Excess cash

Money that is not immediately needed for operations, investments, or upcoming obligations.

Why it Matters:
Can be invested to earn additional returns until it is needed.

Portfolio finance

Activities focused on providing cash and financing to support investment portfolios and trading strategies.

Why it Matters:
Allows investment teams to execute trades without liquidity constraints.

Traded finance

Activities that support the funding and financing of securities transactions.

Why it Matters:
Ensures trades are completed efficiently while managing financing costs.

Portfolio manager

An investment professional responsible for selecting, monitoring, and managing securities within a portfolio.

Why it Matters:
Makes investment decisions that require cash and financing support

Trading desk

A group responsible for executing the purchase and sale of financial securities.

Why it Matters:
Works closely with other teams to ensure transactions are completed smoothly.

Counterparty

The individual or institution on the opposite side of a financial transaction.

Why it Matters:
Their financial strength affects the level of risk in a transaction.

Prime broker

A financial institution that provides hedge funds with services such as financing, custody, securities lending, and trade execution.

Why it Matters:
Serves as a key operational and financing partner for investment firms.

Settlement

The final exchange of cash and securities that officially completes a financial transaction.

Why it Matters:
Ensures ownership transfers correctly and payment obligations are fulfilled.

Clearing

The process of validating, matching, and preparing financial transactions before they are finalized.

Why it Matters:
Reduces operational risk and helps ensure transactions are completed accurately.

Commission management

The process of tracking, reviewing, and controlling fees paid for executing trades.

Why it Matters:
Helps reduce costs and improve the efficiency of trading operations.

Market structure

The system of participants, rules, exchanges, and processes through which financial securities are bought and sold.

Why it Matters:
Understanding how markets operate helps organizations make better trading, financing, and liquidity decisions.

Repurchase Agreement (Repo)

A short-term transaction in which cash is exchanged for securities with an agreement to reverse the transaction at a later date for a slightly higher price.

Why it Matters:
Provides a safe way to invest excess cash while maintaining liquidity because the transaction is backed by collateral.

Reverse Repo

The lending side of a short-term transaction in which cash is provided in exchange for securities that serve as collateral.

Why it Matters:
Allows organizations with excess cash to earn interest while reducing credit risk.

Collateral

An asset pledged to secure a financial obligation if repayment does not occur.

Why it Matters:
Reduces risk by providing something of value that can be sold if a borrower defaults.

Haircut

A percentage reduction applied to the market value of pledged assets to protect against price fluctuations.

Why it Matters:
Provides an additional cushion that reduces the lender’s risk.

Commericial paper

A short-term unsecured debt instrument issued by companies to raise cash.

Why it Matters:
Provides higher returns than some government investments but carries greater credit risk.

Treasury bills

Short-term debt securities issued by the U.S. government with maturities of one year or less.

Why it Matters:
They are highly liquid, very low risk, and commonly used for short-term cash management.

Agency securities

Debt securities issued by government-sponsored enterprises or federal agencies.

Why it Matters:
Often provide slightly higher yields than Treasury securities while maintaining relatively low risk.

Money market

A financial market where short-term debt instruments are bought and sold.

Why it Matters:
Provides organizations with opportunities to invest excess cash while maintaining liquidity.

Repo rate

The interest rate earned or paid on a short-term collateralized financing transaction.

Why it Matters:
Represents the cost of borrowing or the return on investing cash in the repo market.

Overnight investing

Placing funds into investments that mature on the next business day.

Why it Matters:
Allows excess cash to earn interest while remaining available almost immediately.

Maturity

The date on which a debt security or financial obligation must be repaid.

Why it Matters:
Treasury matches investment maturities with expected cash needs.

Yield

The return earned on an investment, usually expressed as an annual percentage.

Why it Matters:
Helps determine which investments provide the best return for an acceptable level of risk.

Credit risk

The possibility that a borrower or institution will fail to meet its financial obligations.

Why it Matters:
Treasury evaluates this risk before investing or lending money.

Credit rating

An independent assessment of an organization’s ability to repay its financial obligations.

Why it Matters:
Helps investors evaluate the safety of potential investments.

Credit Exposure

The amount of money that could be lost if another party fails to meet its obligations.

Why it Matters:
Organizations monitor exposure to avoid excessive losses from any single institution.

Credit limits

Pre-established maximum amounts that can be invested or loaned to a particular institution or borrower.

Why it Matters:
Prevents excessive concentration of risk.

Risk parameters

Guidelines and limits established to control the amount and type of risk that can be taken.

Why it Matters:
Helps ensure investment decisions remain consistent with the firm’s risk tolerance.

Diversification

The practice of spreading investments across multiple assets, issuers, or markets.

Why it Matters:
Reduces the impact of losses from any single investment.

Interest rate risk

The possibility that changes in interest rates will affect the value of investments or borrowing costs.

Why it Matters:
Treasury monitors changing rates because they directly influence investment returns and financing costs.

Market risk

The possibility of financial loss caused by changes in market prices or economic conditions.

Why it Matters:
Affects the value of investments and influences treasury and financing decisions.

Fixed Income

Definition:
Investments that provide scheduled interest payments and return the principal at maturity, such as bonds.

Why it Matters:
These securities are commonly used for financing and short-term cash investing.

Bond

Definition:
A debt security issued by a government or company to raise money from investors.

Why it Matters:
Represents one of the largest markets Treasury professionals interact with.

Stock (Equity)

Definition:
A security that represents partial ownership in a company.

Why it Matters:
Many hedge funds invest heavily in equities, making it important to understand the asset class.

Yield Curve

Definition:
A graph showing interest rates on similar debt securities with different maturities.

Why it Matters:
Helps investors evaluate economic expectations and financing opportunities.

Federal Reserve

Definition:
The central bank of the United States responsible for monetary policy and interest rates.

Why it Matters:
Its decisions directly influence borrowing costs, investment returns, and liquidity.

Treasury Yield

Definition:
The return earned from holding U.S. government debt securities.

Why it Matters:
Serves as a benchmark for many interest rates across financial markets.

Multi-Strategy Hedge Fund

Definition:
An investment firm that uses several different investment approaches rather than relying on a single strategy.

Why it Matters:
Diversifying strategies helps reduce reliance on one market or investment style.

Fundamental Equities

Definition:
An investment approach that evaluates companies using financial statements, earnings, industry trends, and business fundamentals.

Why it Matters:
One of Walleye’s primary investment strategies.

Quantitative Investing

Definition:
An investment approach that uses mathematical models, statistics, and large amounts of data to make investment decisions.

Why it Matters:
Represents another major investment strategy used by Walleye.

Volatility Strategies

Definition:
Investment strategies designed to profit from changes in market volatility rather than simply market direction.

Why it Matters:
Another core strategy used by Walleye.

Risk Capital

Definition:
Money allocated to investments with the expectation of earning returns while accepting a defined level of risk.

Why it Matters:
Successful firms carefully decide where and how much capital to place at risk.

Diversification

Definition:
The practice of spreading investments across different assets, industries, or strategies to reduce overall risk.

Why it Matters:
Helps improve risk-adjusted returns and reduce concentration risk.

Risk Financing

Definition:
The process of planning and securing financial resources to cover potential losses from identified risks.

Why it Matters:
Allows organizations to absorb or transfer financial risks effectively.

Debt Management

Definition:
The process of planning, issuing, monitoring, and repaying borrowed funds.

Why it Matters:
Helps organizations finance operations while controlling borrowing costs and maintaining financial stability.

Portfolio Management

Definition:
The process of selecting, monitoring, and adjusting investments to achieve specific financial objectives.

Why it Matters:
Treasury supports this function by ensuring funding and liquidity are available.

Risk Identification

Definition:
The process of recognizing events or situations that could negatively affect an organization.

Why it Matters:
Understanding risks is the first step toward managing and reducing them.

Risk Assessment

Definition:
The process of evaluating the likelihood and potential impact of identified risks.

Why it Matters:
Helps organizations prioritize resources toward the most significant risks.

Financial Markets

Definition:
Systems where buyers and sellers exchange financial assets such as stocks, bonds, derivatives, and currencies.

Why it Matters:
Treasury teams operate within these markets to invest cash, obtain financing, and manage liquidity.

Buy Side

Definition:
Organizations that invest capital by purchasing securities, such as hedge funds, mutual funds, and pension funds.

Why it Matters:
Walleye operates on the buy side and invests capital on behalf of the firm.

Sell Side

Definition:
Organizations that create, facilitate, or execute financial transactions for investors, such as investment banks and broker-dealers.

Why it Matters:
Treasury teams frequently work with sell-side firms for financing, trading, and market access.

Asset Allocation

Definition: The process of distributing investments among different asset classes based on objectives and risk tolerance.

Why it Matters: Different strategies require different funding and liquidity needs.

Margin

Definition: Money or securities required to support leveraged trading positions.

Why it Matters: Treasury helps ensure sufficient funds are available to meet margin requirements.

Leverage

Definition: The use of borrowed money to increase the size of an investment position.

Why it Matters: Can amplify both returns and losses, making financing and liquidity management more important.

Equity Market

• Definition: The market where ownership shares of publicly traded companies are bought and sold.

• Why it Matters: One of Walleye’s primary investment areas.

Fixed Income Market

• Definition: The market for debt securities such as government and corporate bonds.

• Why it Matters: Treasury frequently invests excess cash and monitors interest rates in these markets.

Money Market

• Definition: The market for highly liquid, short-term debt securities.

• Why it Matters: Treasury uses these investments for liquidity management.

Foreign Exchange (FX) Market

• Definition: The market where different currencies are exchanged.

• Why it Matters: Global firms often need Treasury to manage multiple currencies.

Derivatives Market

• Definition: The market for contracts whose value depends on another financial asset.

• Why it Matters: Many hedge funds use derivatives to manage risk or generate returns.

Options Market

• Definition: The market for contracts giving the right, but not the obligation, to buy or sell an asset at a set price before expiration.

• Why it Matters: Walleye was founded as an options market maker.

Futures Market

• Definition: The market for standardized contracts to buy or sell an asset at a future date.

• Why it Matters: Commonly used for hedging and speculation.

Bond Market

• Definition: The market where governments and companies issue and trade debt securities.

• Why it Matters: Treasury professionals monitor yields, financing costs, and liquidity.

Market Maker

• Definition: A firm that continuously quotes prices to buy and sell securities, helping provide liquidity to the market.

• Why it Matters: Walleye originally started as an options market maker.