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Treasury management (or treasury operations) –
• • •
•
Introduction and scope TM is the Management of an enterprise's holdings of Assets and Liabilities. A) With the ultimate goal of maximizing the firm's liquidity. B) mitigating its operational, financial and reputational risk. Treasury Management In fact is a function which include a firm's collections, disbursements, concentration, investment and
• The practice of establishing a specialist treasury function in the finance department of a firm can be traced back to the late 1960s. • Technological developments, the breakdown of exchange controls and increasingly volatile interest rates and exchange rates, combined with the globalisation of business, have all created greater opportunities and risks for businesses over the past few decades. • To survive in today’s complex financial environment, businesses must be able to manage both their ability to take these opportunities and their exposure to the risks they create.
• The treasury function exists in every business, although in small firms it may be part of a department that’s responsible for other functions, such as accounting or company secretarial work. • In larger organisations it is likely to be a separate department reporting to the chief financial officer, but it needs to communicate well with the rest of the organisation if it’s to provide an effective service.
• For non-banking entities, the terms Treasury Management and Cash Management are sometimes used interchangeably. • But the fact remains that the scope of treasury management is larger (and includes funding and investment activities mentioned above). • In general, a company's treasury operations comes under the control of the CFO, VicePresident / Director of Finance or Treasurer, and is handled on a day-to-day basis by the organization's treasury staff.
In larger firms, it may also include trading in bonds, currencies, financial derivatives and the associated financial risk management. • Most banks now have • separate departments devoted to treasury management and supporting their clients' needs in this area. • Treasury management products and services to the clients and proprietary management of treasury has become an essential requirement in globlised financial system. •
• • • • • • • • •
Trading of securities Skills Required in trading; Mathematical Skills Negotiation Skills Ability to read the market Ability to forecast the market Risk Taking Ability Pressure-Handling Skills Trader Mentality Ability to start afresh
• There are six core functions of the treasury of general significance in an organization. • A)Cash management. • B)Liquidity planning and control. • C)Management of interest, currency and commodity risks. • D)Procurement of finance and financial investments. • E)Contacts with banks and rating agencies. • F)Corporate finance.
• Cash management clearly forms part of the treasury’s core functions. • In addition to dealing with payment transactions. • cash management includes- planning, account organisation,- cash flow monitoring, -managing bank accounts, electronic banking, pooling and netting as well as the function of in-house bank.
• Liquidity planning and control are closely linked to cash management. • It covers interest and currency risks, as well as increasingly also, commodity risks. • The function involves control of these risks, as well as the documentation of hedging transactions.
• The core duties of the treasury also comprise the procurement of finance and finance related investments. • The function of the procurement of finance at the competitive and at least cost is more significant than that of financial investments. • The art of of systematic financial investments, in the sense of active asset management depicts an efficient treasury management..
• The corporate finance functions of treasury comprise medium and long term financing, particularly capital market instruments, group financing, credit, leasing, promotion instruments, shareholders’ loans and, in this instance, the handling, monitoring, terms, conditions, hedging, periods and contractual dates. • This sector however, assumes less significance among the other core functions and is merely mentioned as a marginal function by about 15% of the corporates.
• A separate treasury function is more likely to develop the right skills for such roles. • In larger firms, treasury is usually centralised at head office and provides as service to all parts of the business. • This allows it to achieve economies of scale – For example, by obtaining better borrowing rates.
• The financial control function is often delegated to individual units, where it can respond more easily to customers and suppliers and relate more specifically to the units’ competitors. • As a result, treasury and financial control tend to be separated by location as well as responsibility. • The main functions of the treasurer can be classified as follows: • A)Banking. • The treasurer is responsible for managing the business’s relationships with banks. • This is an integral part of the three other
B)Liquidity management. • This involves working capital and money management. • The treasurer will need to ensure that the business has the liquid funds it needs, and that it invests surplus money. C)Currency management.
• be used to manage exchange rateThe treasurer is responsible for providing the business with forecasts of exchange rate movements, which in turn determines the procedures that will risks
• Bank Treasuries have the following departments: • A Fixed Income or Money Market desk that is devoted to buying and selling interest bearing securities • A Foreign exchange or "FX" desk that buys and sells currencies • A Capital Markets or Equities desk that deals in shares listed on the stock market. • Discussions on the departments as management of operational risk by the Banks is discussed later. • Front ,Mid and Back offices.
• To undertake all these activities, • treasurers require specialist skills to be able to handle an ever-growing range of capital instruments – for instance, External commercial borrowings and import and export transactions of the company treasurer need to explore the most suitable way to protect their company from foreign exchange risk. • This will demands a good knowledge of forward markets and the ability to choose the most appropriate methods of hedging and to obtain foreign exchange cover.
• They also need a knowledge of taxation in all areas in which their group operates and, following on from that, the ability to advise effectively on policies such as transfer pricing in permissible ways to minimise the business’s overall tax liability. • The capacity to achieve big gains or sustain big losses is enormous – • in the span of a few hours a treasurer can wipe out all the profits their organisation has made over several months. • It is therefore important that the authority and responsibility associated with the treasury function are carefully defined and monitored
• . This becomes even more important as the range of derivatives increases. • Senior managers need to be aware of which risks are being carried, which are being laid off and, where appropriate, which are being taken on. • There is also increasing pressure on companies to disclose in their annual reports more information about their treasury policies and their “positions” on the balance sheet date.
• So as a corporate governance and risk management policy, • Both the treasurer and the financial controller will usually report to the financial director, whose concern will be to harmonize their activities in the most efficient way possible. • Here are two examples comparing their relationships: • 1.The treasurer is best able to assess cost of capital and quantify the business’s aversion to risk, while the financial controller relates these factors to group strategy. • 2. The financial controller identifies the business’s currency risks, while the treasurer advises on the best means to hedge the risks.
• In addition the Treasury function also have a Proprietary Trading desk that conducts trading activities for the bank's own account and capital, • An Asset liability management(ALM) desk that manages the risk of interest rate mismatch and liquidity; • and a Transfer pricing or Pooling function that prices liquidity for business lines (the liability and asset sales teams) within the bank.
Treasury Functions for -MNC
• Companies should focus on five moves to improve their global treasury function. 1. Centralize the treasury function globally • Historically, most companies have had a treasury department at their corporate headquarters, but it managed only core activities, and often duplicated those of individual business units. • As bank communications technology improved and treasury groups added new responsibilities, it made sense to consolidate functions that had been operating independently in different parts of the world.
• The ideal model would centralize policy setting, decision making, and execution— though not necessarily personnel. • Consolidating the treasury function under the global treasurer can help by giving managers an aggregate view of their cash flow and risk positions—a view they need to optimize debt and investment portfolios and to minimize taxes and financial risk.
• Moreover, the operating model and infrastructure that connect a company’s various activities, portfolios, and risks ensure that even regional treasury groups have the quickness and rigor needed to make the most of activities in volatile markets. • They can therefore take advantage of local financial opportunities and avoid unnecessary losses. • Such a treasury would have to be flexible and well controlled to receive inputs from regional treasuries
Strengthen Governance • Wherever there’s money moving around, fraud and mismanagement are risks. • That’s particularly true in a company’s treasury department, where funds move in real time, using complicated financial instruments—and where an erroneous transaction can affect accounting, financial reporting, and internal controls • As the companies expand into some developing markets the governance is often weak or nonexistent.
• Strengthening treasury governance requires a thorough review of policies and processes for core activities, followed by testing to ensure that they work well in practice and by comprehensive training. • One way to start is to test how processes work under stress. • Business continuity plans is one of the essential tests that keep treasury operations running through unforeseeable catastrophic events, such as the recent hurricane on the US East Coast, the 2011 tsunami in Japan, or the 2001 terrorist attacks on the New York World Trade Center.
• 3.Enhance treasury-management systems • The rapid pace of software development over the past 20 years has brought to market a range of sophisticated tools that facilitate the treasury function • Some organisations are not convinced that advanced systems are worth the cost, which can run into .huge cost. • Though the value of stronger governance, internal controls, and better analytical tools is a challenge still the spreadsheet programs, what so ever powerful they may be, are woefully inadequate for a centralized global treasury. • Sometimes a small mistake can lead to huge loss if remains undetected using the older systems/tools.
4.Increase the accuracy of cash flow forecasting
• A company’s treasury function should aggressively analyze cash flow forecasts and different cash scenarios, • consult with the company’s businesses in all global regions on how they might best utilize cash economically, • run currency “what if” scenarios, and provide a multinational company with better intelligence for the use of cash.
• An effective program also acts as an earlywarning system to anticipate potential liquidity gaps, • which are a primary source of financial risk, particularly in emerging markets. • Liquidity forecasts, measuring liquid assets and credit sources to predict whether a company will be able to pay its debts and obligations, can help it manage cash by testing stress scenarios for differing market
• The daily, weekly, and monthly monitoring of cash in all business regions helps treasurers keep track of progress; • for example, it ensures that they have the information needed to decide which cash pools and funding options they should pursue to avoid a cash shortfall. • Here again, an advanced treasury system is a powerful tool. But as with all technological solutions, it can’t fix variances in global cash flow forecasts or automate the process completely. • Cash flow forecasting is a structured and process that requires treasurers to seek input from the field and various business locations
Working Capital Management
• Managing working capital is complicated because it requires spending a lot of time with business units in their various regions to understand how they pay their suppliers and figure out customer behavior. It’s not an easy task. Yet many treasurers find it a useful way to raise their profile and distinguish themselves as strategic financial advisers to the organization. • The CFO of a business unit in a global industrial company, for instance, recognized the progress of his treasury’s efforts to reduce working capital in accounts payable and receivable. But he also stressed that efforts to improve inventory still needed to encompass the entire cash conversion cycle
•THANK YOU
• • •
•
Introduction and scope TM is the Management of an enterprise's holdings of Assets and Liabilities. A) With the ultimate goal of maximizing the firm's liquidity. B) mitigating its operational, financial and reputational risk. Treasury Management In fact is a function which include a firm's collections, disbursements, concentration, investment and
• The practice of establishing a specialist treasury function in the finance department of a firm can be traced back to the late 1960s. • Technological developments, the breakdown of exchange controls and increasingly volatile interest rates and exchange rates, combined with the globalisation of business, have all created greater opportunities and risks for businesses over the past few decades. • To survive in today’s complex financial environment, businesses must be able to manage both their ability to take these opportunities and their exposure to the risks they create.
• The treasury function exists in every business, although in small firms it may be part of a department that’s responsible for other functions, such as accounting or company secretarial work. • In larger organisations it is likely to be a separate department reporting to the chief financial officer, but it needs to communicate well with the rest of the organisation if it’s to provide an effective service.
• For non-banking entities, the terms Treasury Management and Cash Management are sometimes used interchangeably. • But the fact remains that the scope of treasury management is larger (and includes funding and investment activities mentioned above). • In general, a company's treasury operations comes under the control of the CFO, VicePresident / Director of Finance or Treasurer, and is handled on a day-to-day basis by the organization's treasury staff.
In larger firms, it may also include trading in bonds, currencies, financial derivatives and the associated financial risk management. • Most banks now have • separate departments devoted to treasury management and supporting their clients' needs in this area. • Treasury management products and services to the clients and proprietary management of treasury has become an essential requirement in globlised financial system. •
• • • • • • • • •
Trading of securities Skills Required in trading; Mathematical Skills Negotiation Skills Ability to read the market Ability to forecast the market Risk Taking Ability Pressure-Handling Skills Trader Mentality Ability to start afresh
• There are six core functions of the treasury of general significance in an organization. • A)Cash management. • B)Liquidity planning and control. • C)Management of interest, currency and commodity risks. • D)Procurement of finance and financial investments. • E)Contacts with banks and rating agencies. • F)Corporate finance.
• Cash management clearly forms part of the treasury’s core functions. • In addition to dealing with payment transactions. • cash management includes- planning, account organisation,- cash flow monitoring, -managing bank accounts, electronic banking, pooling and netting as well as the function of in-house bank.
• Liquidity planning and control are closely linked to cash management. • It covers interest and currency risks, as well as increasingly also, commodity risks. • The function involves control of these risks, as well as the documentation of hedging transactions.
• The core duties of the treasury also comprise the procurement of finance and finance related investments. • The function of the procurement of finance at the competitive and at least cost is more significant than that of financial investments. • The art of of systematic financial investments, in the sense of active asset management depicts an efficient treasury management..
• The corporate finance functions of treasury comprise medium and long term financing, particularly capital market instruments, group financing, credit, leasing, promotion instruments, shareholders’ loans and, in this instance, the handling, monitoring, terms, conditions, hedging, periods and contractual dates. • This sector however, assumes less significance among the other core functions and is merely mentioned as a marginal function by about 15% of the corporates.
• A separate treasury function is more likely to develop the right skills for such roles. • In larger firms, treasury is usually centralised at head office and provides as service to all parts of the business. • This allows it to achieve economies of scale – For example, by obtaining better borrowing rates.
• The financial control function is often delegated to individual units, where it can respond more easily to customers and suppliers and relate more specifically to the units’ competitors. • As a result, treasury and financial control tend to be separated by location as well as responsibility. • The main functions of the treasurer can be classified as follows: • A)Banking. • The treasurer is responsible for managing the business’s relationships with banks. • This is an integral part of the three other
B)Liquidity management. • This involves working capital and money management. • The treasurer will need to ensure that the business has the liquid funds it needs, and that it invests surplus money. C)Currency management.
• be used to manage exchange rateThe treasurer is responsible for providing the business with forecasts of exchange rate movements, which in turn determines the procedures that will risks
• Bank Treasuries have the following departments: • A Fixed Income or Money Market desk that is devoted to buying and selling interest bearing securities • A Foreign exchange or "FX" desk that buys and sells currencies • A Capital Markets or Equities desk that deals in shares listed on the stock market. • Discussions on the departments as management of operational risk by the Banks is discussed later. • Front ,Mid and Back offices.
• To undertake all these activities, • treasurers require specialist skills to be able to handle an ever-growing range of capital instruments – for instance, External commercial borrowings and import and export transactions of the company treasurer need to explore the most suitable way to protect their company from foreign exchange risk. • This will demands a good knowledge of forward markets and the ability to choose the most appropriate methods of hedging and to obtain foreign exchange cover.
• They also need a knowledge of taxation in all areas in which their group operates and, following on from that, the ability to advise effectively on policies such as transfer pricing in permissible ways to minimise the business’s overall tax liability. • The capacity to achieve big gains or sustain big losses is enormous – • in the span of a few hours a treasurer can wipe out all the profits their organisation has made over several months. • It is therefore important that the authority and responsibility associated with the treasury function are carefully defined and monitored
• . This becomes even more important as the range of derivatives increases. • Senior managers need to be aware of which risks are being carried, which are being laid off and, where appropriate, which are being taken on. • There is also increasing pressure on companies to disclose in their annual reports more information about their treasury policies and their “positions” on the balance sheet date.
• So as a corporate governance and risk management policy, • Both the treasurer and the financial controller will usually report to the financial director, whose concern will be to harmonize their activities in the most efficient way possible. • Here are two examples comparing their relationships: • 1.The treasurer is best able to assess cost of capital and quantify the business’s aversion to risk, while the financial controller relates these factors to group strategy. • 2. The financial controller identifies the business’s currency risks, while the treasurer advises on the best means to hedge the risks.
• In addition the Treasury function also have a Proprietary Trading desk that conducts trading activities for the bank's own account and capital, • An Asset liability management(ALM) desk that manages the risk of interest rate mismatch and liquidity; • and a Transfer pricing or Pooling function that prices liquidity for business lines (the liability and asset sales teams) within the bank.
Treasury Functions for -MNC
• Companies should focus on five moves to improve their global treasury function. 1. Centralize the treasury function globally • Historically, most companies have had a treasury department at their corporate headquarters, but it managed only core activities, and often duplicated those of individual business units. • As bank communications technology improved and treasury groups added new responsibilities, it made sense to consolidate functions that had been operating independently in different parts of the world.
• The ideal model would centralize policy setting, decision making, and execution— though not necessarily personnel. • Consolidating the treasury function under the global treasurer can help by giving managers an aggregate view of their cash flow and risk positions—a view they need to optimize debt and investment portfolios and to minimize taxes and financial risk.
• Moreover, the operating model and infrastructure that connect a company’s various activities, portfolios, and risks ensure that even regional treasury groups have the quickness and rigor needed to make the most of activities in volatile markets. • They can therefore take advantage of local financial opportunities and avoid unnecessary losses. • Such a treasury would have to be flexible and well controlled to receive inputs from regional treasuries
Strengthen Governance • Wherever there’s money moving around, fraud and mismanagement are risks. • That’s particularly true in a company’s treasury department, where funds move in real time, using complicated financial instruments—and where an erroneous transaction can affect accounting, financial reporting, and internal controls • As the companies expand into some developing markets the governance is often weak or nonexistent.
• Strengthening treasury governance requires a thorough review of policies and processes for core activities, followed by testing to ensure that they work well in practice and by comprehensive training. • One way to start is to test how processes work under stress. • Business continuity plans is one of the essential tests that keep treasury operations running through unforeseeable catastrophic events, such as the recent hurricane on the US East Coast, the 2011 tsunami in Japan, or the 2001 terrorist attacks on the New York World Trade Center.
• 3.Enhance treasury-management systems • The rapid pace of software development over the past 20 years has brought to market a range of sophisticated tools that facilitate the treasury function • Some organisations are not convinced that advanced systems are worth the cost, which can run into .huge cost. • Though the value of stronger governance, internal controls, and better analytical tools is a challenge still the spreadsheet programs, what so ever powerful they may be, are woefully inadequate for a centralized global treasury. • Sometimes a small mistake can lead to huge loss if remains undetected using the older systems/tools.
4.Increase the accuracy of cash flow forecasting
• A company’s treasury function should aggressively analyze cash flow forecasts and different cash scenarios, • consult with the company’s businesses in all global regions on how they might best utilize cash economically, • run currency “what if” scenarios, and provide a multinational company with better intelligence for the use of cash.
• An effective program also acts as an earlywarning system to anticipate potential liquidity gaps, • which are a primary source of financial risk, particularly in emerging markets. • Liquidity forecasts, measuring liquid assets and credit sources to predict whether a company will be able to pay its debts and obligations, can help it manage cash by testing stress scenarios for differing market
• The daily, weekly, and monthly monitoring of cash in all business regions helps treasurers keep track of progress; • for example, it ensures that they have the information needed to decide which cash pools and funding options they should pursue to avoid a cash shortfall. • Here again, an advanced treasury system is a powerful tool. But as with all technological solutions, it can’t fix variances in global cash flow forecasts or automate the process completely. • Cash flow forecasting is a structured and process that requires treasurers to seek input from the field and various business locations
Working Capital Management
• Managing working capital is complicated because it requires spending a lot of time with business units in their various regions to understand how they pay their suppliers and figure out customer behavior. It’s not an easy task. Yet many treasurers find it a useful way to raise their profile and distinguish themselves as strategic financial advisers to the organization. • The CFO of a business unit in a global industrial company, for instance, recognized the progress of his treasury’s efforts to reduce working capital in accounts payable and receivable. But he also stressed that efforts to improve inventory still needed to encompass the entire cash conversion cycle
•THANK YOU
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