The banking operations are confined to lending, accepting deposits and miscellaneous services. It is the treasury which operates in financial markets directly, establishing a link between core banking functions and market operations. Thus, the market risk is identified and monitored through treasury. Treasury uses derivatives and other means to bridge the liquidity and rate sensitivity gaps. Treasury products are marketable and liquidity can be infused at any point of time. Treasury monitors exchange rate and interest rate movements. Hence, risk management is an integral part of treasury. In many banks, either ALM desk is part of the dealing room or Asset Liability Management Committee (ALCO) support group is part of the treasury team. The head of the treasury is an important member of ALCO, thereby contributing not only to risk management but also to product pricing and other policy issues.
