midterm Flashcards
___ is a management system that aims to
optimize a company’s liquidity, while also mitigating its financial,
operational, and reputational risk.
includes a firm’s collections, disbursements,
concentration, investment, and funding activities. In larger firms, it
may also include financial risk management.
Treasury management
This is the beginning of all other roles carried out in the
operation of a treasury department.
Treasury staff need to draw all those accounting records
(within the organization including its subsidiaries if any)
and compile them to generate a cash forecast (short and
long-range).
Cash forecasting
___ is a key component of cash forecasting.
The treasurer should be aware of working capital levels and trends and advise management on the impact of proposed policy changes on working capital levels.
working capital management
Combining information in the cash forecast and working capital management activities.
Treasury staff can ensure that sufficient cash is available for operational needs.
Cash management
When the forecast shows some excess funds, the treasury staff is responsible for the proper investment of it.
Investment management
Three primary goals of the treasury’s role are:
(a) maximum return on investment;
(b) matching the maturity dates of investments with a
company’s projected cash needs; and most importantly
(c) not putting funds at risk.
The treasury staff is also responsible for creating risk management strategies and implementing hedging tactics to mitigate the whole company’s risk—particularly in
anticipating:
(a) the market’s interest rates may rise and leave the company paying on its debt obligations; and
(b) company’s foreign exchange positions that could also be at risk if exchange rates suddenly worsen.
Treasury risk management
Credit Rating Agency Relations:
● A company may issue marketable debt.
● The treasury staff would need to show quick responds to information requests from the credit agency’s review team.
A long-term relationship can lead to some degree of bank cooperation if a company is having financial difficulties and may sometimes lead to modest reductions in bank fees. The treasurers should, therefore, often meet with the representatives of any bank that the company uses to:
a. discuss the company’s financial condition,
b. the bank’s fee structure,
c. any debt granted to the company by the bank, and
d. foreign exchange transactions, hedges, wire transfers, cash pooling, and so on.
Bank relation
Maintaining an excellent relationship with the investment community for fundraising purposes is important—from the
(a) brokers and investment bankers who sell the company’s debt and equity offerings; to
(b) the investors, pension funds, and other sources of cash, who buy the company’s debt and equity.
the treasury staffs also monitor the market conditions constantly, and therefore is an excellent resource for the management team should they want to know about
interest rates that the company is likely to pay on new debt offerings, the availability of debt, and probable terms that equity investors will want in exchange for their investment in the company.
Fund raising
FOUR PILLARS OF TREASURY MANAGEMENT:
Pillar 1
Developing a global treasury talent center and organization
Pillar 2
Creating an analytical hub and agent of change that supports business decisions
Pillar 3
Developing an “agile” treasury
organization that can quickly react to
the changing business cycle and manage financial risks
Pillar 4
Enabling technology through
implementation of an appropriate treasury management system (TMS)
___ manage daily working capital cash, forecasting cash receipts, disbursements, and closing balances to ensure proper cash utilization and borrowing.
Treasury operations
In small businesses, ___ may be handled by the owner, while larger companies employ controllers or CFOs for these tasks.
Treasury functions
Seven interrelated elements form the methodology for Treasury’s risk management framework:
- Establishing the context
- Identifying risks
- Analyzing risks
- Evaluating risks
- Treating risks
- Monitoring and reviewing risks
- Communication and consultation plan
● ___
➢ o Directly related to strategic planning and management processes.
➢ o May significantly impact achieving Treasury’s vision and strategic objectives.
● ___
➢ o Impact divisional, business unit, or project actions.
➢ o Can affect strategic objectives or program/project management objectives.
● ___
➢ o Managed at the sponsor, group head, or division/business unit level.
➢ o Require risk assessment throughout the project life cycle.
- Strategic risks
- Objective risks
- Project risks
