CH 1. Role of Treasury Management

Question 1

Major Objectives of Treasury Mgmt

Answer 1

Maintain Liquidity Optimize Cash Resources/CashFlow Access to Short Term Financing Manage Investments Access Long Term Financing Manage Financial Risk Manage Information and Technology Coordinate w/biz units and share financial info Manage External Parties.

Core objective is to support business strategies. Funding the creation of revenue, while operating cost-effectively and remaining comliant with relevant regulations.

Question 2

Cash Conversion Cycle

Answer 2

Borrow >Purchase Resources >Pay for Resources >Sell Resouces >Collect Revenues >Pay down borrowings

Question 3

Daily Treasury Operations/Cash Management

Answer 3

Calculate Cash Position Monitor cash balances at banks collect/concentrate/disburse cash Initiate and approve transactions Manage confirmations and reconciliation Keep records/Maintain reporting Develop Cash forecasts Invest/borrow funds on ST basis Research/recon exceptions items (fees, OS checks) Coordinate with A/P,A/R, payroll, tax, accounting Manage bank and investment admin relationships

Question 4

Managing External Relationships

Answer 4

Financial Institutions

Third-Party Providers

Rating Agencies

External Investment Managers

External Auditors

Regulatory Agencies

Industy Trade Groups

Suppliers/Customers

External Legal Counsel

Financial Markets

Question 5

Managing Internal Relationships

Answer 5

A/R

A/P

IT

Retirement Benefits Management

HR & Payroll

Internal Audit

Risk Magagement

Accounting/Reporting

Tax/Legal

Procurement/Supply Chain

Business Units

FP&A

Question 6

Organization of The Financial Function

Answer 6

Question 7

Role of CFO

Answer 7

Member of executive management team that reports to the CEO. Plays an important role in strategic planning and capital budgeting and financial planning process as well as oversees accurate financial reporting. (SOX 2002 Act holds the CFO personally responsible for the accuracy and completeness of financial statements).

Resonsible for the financial management of the first incuding accounting and treasury functions, risk, tax, investor relations, FP&A.

Question 8

Role of the Treasurer

Answer 8

Develop stategy and implementing treasury policies and procedures.

Oversee daily liquidity and cash management.

Oversee ST/LT investing.

Arrange ST/LT external financing/borrowing.

Managing financial risks.

Manage relationships with banks/financial institution, rating agencies, and other service providers.

Manage domestic and international payments.

Question 9

Asst Treasurer/Director of Treasury

Answer 9

Responsible for Treasury’s daily operations.

Question 10

Cash/Treasury Manager

Answer 10

Directs daily cash management operations. Cash administration, managment of bank accounts and relationships.

Question 11

FX Manager

Answer 11

Responsible for executing daily FX transactions.

Question 12

Controller

Answer 12

Responsible for financial reporting and compliance. Oversees A/P, Accounting, budgeting, FP&A, and coordinating with external auditors.

Question 13

FP&A Manager

Answer 13

Forecasting and interpreting financial information to provide insight to the board and company management to support financial decision making.

Question 14

Risk Manager

Answer 14

Risk managers report to CFO. Evaluate and negotiate insurance policies and coverage levels, disaster recovery and business continuity planning.

Question 15

Investment Manager

Answer 15

Responsible for investing in longer-term retained cash and/or managing the corporate pension fund.

Treasury usually is responsible for ST cash investing.

Question 16

Internal Auditor

Answer 16

Manage internal audit functions to ensure contols and operating procedures are established to protect the company from losses caused by inefficient, inaccuracy or fraud.

Reports directly to the board of directors to assur the auditor’s independence and objectvity.

Rutinely have board audit committes that follow and monitor internal auditing activities.

Question 17

Credit Manager

Answer 17

Preserves and collects A/R, implements corporate credit policies, apporves the extension of credit terms and exposure limits to customers, and instablished information systems to monitor A/R.

Reports to controller, Treasurer or sales manager.

Question 18

A/R Manager

Answer 18

Monitors and collects A/R created through credit sales. Resonsible for the accurate posting of all payments made on accounts and the reconcilement of the payment to the invoices, commonly referred to as the application of payments.

Question 19

A/P Manager

Answer 19

Ensures payments are made to vendors and suppliers in a manner that is consistant with credit terms. Maintaining lists of authorized vendors and suppliers, reviewing incoming invoices, matching invoices to approved purchase orders, reviewing incoices for proper approal and scheduling payments.

Usually reports to controller.

Question 20

Investor Relations Manager/Officer

Answer 20

Ensures that both shareholders and bondholders receive up-to-date information on the company, financial reporting that is required by regulatory authorities. Provides access to annual reports, manages regular investor briefings and answers questions that current or potential investors may have regarding the company.

Reports to CFO.

Question 21

Cost Center vs. Profit Center

Answer 21

Cost Center is the most common approach because Treasury is usually regarded as a support function and is not expected to directly earn a profit for the firm. On the downside the firm may focus the cost of treasury operations and not the value provided by the function.

Profit Center may be used by companies heavily involved in global finance, trade or risk management, as it may generate income for the firm by trade operations or hedging/investment activities. There may be risk from the pressure of producing a profit for the firm.

Question 22

Centralized vs Decentralized

Answer 22

Centralized - a company that has multiple legal entities, gepgrahically disbursed offices and limited personnel may centralized its treasury functions at the company’s headquarters. Offers the advantages of stronger control, economies of scale and lower aggregate operating costs and tax advantages based on the location of treasury, but has reduced autonomy (less self-governing).

Decentralized - local entities possess familiarity with local businesses, banking proactices and regulations, languages, customs, and cultures. More autonomy (can self-govern easily), but heavier burden to compliance efforts due to span-of-control issues and the increased need for coordination.

Question 23

(SSC) Shared Service Centers

Answer 23

Department withing a multinational organization that supplies multiple bsuness units with specialized services. Often services duplicated by multiple operating units, such as IT/HR/AP…The funding and management can beshared across the enterprise.

Reduces the cost of multiple operations

Standardize processes.

Improve the quality, timeliness of services.

Increase strategoc flexibility.

Strengthens internal controls.

Question 24

In-House Bank

Answer 24

Extension of centralized treasury and SSC concepts. In-house bank provides banking services to participating group of entities rather than external banks. By directing cash flows through the In-house bank, teasury is able to manage liquidity and rist more efficiently.

Question 25

Corporate Governance

Answer 25

The principles and processes by which any organization is governed. Guidelines for managing a company. Guides managerial devsion making to achieve the desired strategic objectives. Establishes a set of checks and balancesto place limits on esecutive perrogatives, to monitor management performance and the assess and manage risk.

Question 26

Role of the BOD

Answer 26

General authority for all business operations. Approve business policies, major initiatives and contracts.

Usually will grant some authority to Treasury:

Open, close and modify bank accounts.

Establish credit facilities.

Oversee investments.

Issue Debt and equity securities.

Devise, Implement and execute risk management strategies.