I to fulfill payment obligations each evening before the

I am currently working at Siemens Financial Service Ltd. (SFSL), which services all other Siemens companies by acting as an in-house bank, providing a multitude of financial services. SFSL earns a profit for the Siemens Group by investing capital in the external interbank market and earning interest through products such as Term Deposits, Draft Discounting, Interbank Lending, and more. So far as a project assistant, I have worked on a project called “Diamond III”, which was designed to increase the amount the SFSL can invest in the external market by altering the Cash Pool Structure of its bank account. In the original Cash Pool, every evening, the cash from each individual Siemens Company Account would “sweep” into the SFSL Header Account to earn overnight interest. In the morning, the cash “sweeps” back into each company’s account. This way, each Siemens Company can pay and receive cash through this account during the day. However, this also means the only interest earned with this cash is through overnight interest because the cash does not remain in the SFSL account during the day. If all the cash could remain in the SFSL Header Account, then SFSL could invest the excess funds in the external market during the day for additional income. I was on a team of four who set up and executed the project for the restructuring of the cash pool. In order to enhance interest revenue by investing more funds during the day, we reconstructed the cash pool with to have an overdraft function during the daytime. At the end of each day, companies’ accounts with a negative balance will be covered instead of sweeping back every morning with the positive balance. This means at the beginning of each day, all the money will be in SFSL’s account and each company’s account will be zero. Companies will still pay and receive through their accounts. Whenever a company makes a payment, it will pay out the money to the recipient as usual through its normal account leading the balance to become negative. In the evening, cash will flow from the SFSL Header Account to each company’s normal account so that the balance returns to zero. The implication for SFSL is that it must prepare enough cash ahead of time to fulfill payment obligations each evening before the bank draws funds. It must know ahead of time how much it must set aside to ensure that each company’s payments will be sufficiently funded. With the objective of making liquidity available to traders, I worked on the internal risk control process to estimate the funding to be reserved in the header account, for the daily spending. I analyzed the big dataset of the historical transactions at SFSL and estimated the value of 27 Million RMB daily spending plus 15 Million RMB “buffer” to cover 99.97% of each day’s payments. During this process, to calculate the range of the payments, I came up with the idea to utilize the “Six Sigma” strategy, which is the idea that six standard deviations between the process mean and the nearest specification limit is enough for no item to fail to meet specification. To present my findings to other colleagues in my company, I self studied the SPSS statistical software to create the visualization of the distribution of the transaction data. I was interested in this project because it was designed in a creative way to optimize the amount of interest companies both pay and receive, with the outcome of improving efficiency and accuracy of allocation of cash for automatic payment. By reviewing the data, we estimated and predicted 3.24 million RMB extra interest to be generated every year, a 34% increase. I was impressed by such significant improvement, with small amount of cost of 0.36 million RMB resulting in an 800% Return-On-Investment (ROI). This project was especially exciting because of its application of creative thinking in the business and finance. It helped me hone my analytic ability and also apply my quantitative skills to solve problems in a real financial world setting. 

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