Question 5: What is the Meaning of EIBOR?

Submitted by Mr Ravi on 21/4/2008

The Doctor's Answer:

The interest rate charged by banks in the United Arab Emirates for interbank transactions. In most cases, EIBOR is the reference rate most commonly used by borrowers and lenders to conduct financial transactions in Dubai and the surrounding Emirates.

Similar to the London Interbank Offered Rate (LIBOR), EIBOR futures contracts are available for trade and there are various EIBOR offered rates depending on the life of the loan.

Many Islamic banks use EIBOR rates as benchmarks for determining the rental rates for special leasing agreements called Ijara.

Question 4:

Can you please explain what Treasury Management is all about in layman's terms?

Submitted by Lekan Shodunke - Nigerai on 3/3/2008

The Doctor's Answer:

"Treasury management includes the management of cash flows, banking, money-market and capital-market transactions; the effective control of the risks associated with those activities; and the pursuit of best performance consistent with those risks. Treasury activities center on the organisation’s use of capital and project financings, borrowing, investment, and hedging instruments and techniques. 

In a nutshell its all about raising money, managing money  and protecting money from the various risks such as currency, commodity and interest rate."

Question 1:

What is the right amount of cash for your business?

Submitted by Mark Beard, Head of Liquidity and Investments, EMEA, Citi on 11/2/2008

The Doctor's Answer:

"Answering these questions is at the root of what we do. Measurement is not enough: acting on the results is what matters. As part of our research we have found that while variations in cash holdings occur due to different characteristics across industries, these variations are outweighed by differences within industries with companies having different degrees of cash effectiveness. Companies with greater cash effectiveness hold lower cash-to-sales ratios which in turn has an impact on profitability."

Mark Beard was interviewed by Helen Sanders in TMI 162, see our publication area for full article.

Question 2:

Where should companies start when it comes to benchmarking performance?

Submitted by Mark Beard, Head of Liquidity and Investments, EMEA, Citi on 11/2/2008

The Doctor's Answer:

Mark Beard, of Citi - "Although many treasurers have found it difficult to monitor and quantify their performance in the past, there are many things one can quantify . W e encourage clients to take a disciplined approach and focus on the areas which have the most impact on the financial performance of the business. In the cash management space, corporations typically measure things which have little impact on financial ratios and the balance sheet. For example, many US corporations focus on check float to try and increase DPO. This can have a disastrous effect on the predictability of cash flow . Predictability and volatility are the two factor s with the most significant impact on the balance sheet and the amount of funding companies need to source for their working capital.

We use various measures with our customers to determine how to reduce volatility and how to increase cash flow predictability in order to make inroads into the financial health of the company. A significant measure is to track cash holdings as a percentage of sales turnover, taking into account that this will differ across industries, which will have different cycles and velocity of cash flow. Rather than looking at cash holdings, treasurers are often monitored on the return on investment this is understandable, but it does not reward or penalise whether this cash should have been held in the first place. For example, we calculated for one US customer, which is typical in many respects, that while a cash centralisation project would create interest savings on short-term investments of $100,000, the balance sheet impact of aggregating cash and reducing the volatility of their cash needs was mor e in region of $60-$80 million."  see TMI issue 161 for full story