The role of a treasurer

Question 1

What is a company’s treasury?

Answer 1

1) They manage money & the financial risks of a business.
2) Ensures that the co has money to manage it’s daily obligations
3) Develops’ a co’s long term strategy & policies

Question 2

What are the three types of treasury roles?

Answer 2

1) Advisor
2) Agency
3) In-house bank

Question 3

What does the Advisor role do?

Answer 3

1) Sets treasury policies & Objectives.
2) Advice on hedging and liquidity management.
3) Manages head office treasury needs
4) Found in decentralised group and led by treasury specialists.

Question 4

What does the Agent role do?

Answer 4

1) Local managers handle the daily needs of a sub while HO deals with banks or markets on behalf of the subsidiaries.
2) Takes advantage of centralised groups economies of scale to negotiate cheaper prices or interest rates.
3) Involves treasury specialists from HO managing sub’s needs and not local managers.

Question 5

What does the In-house bank do?

Answer 5

1) For centralised groups, central treasury acts as a bank for the subsidiaries, charges and interest rates included.
2) HO manages the funds and lending to one another while giving local manage authority.
3) Beneficial as it reduces group banking costs, number of accounts, staff required and enhances transparency.

Question 6

What are the 5 core elements of treasury?

Answer 6

1) Corporate Financial Management
2) Capital Markets & Funding
3) Cash & Liquidity Management
4) Risk Management
5) Treasury Operations & Controls

Question 7

What are the responsibilities of the 5 elements of treasury?

Answer 7

1) CFM: Capital Structure/ Mix, Investment Appraisal, ROI on NCA.
2) CMF: Funding options(stocks, bonds & creditor hierarchy)
3) CLM: Forecast inflows & outflows, optimise cash & liquidity and policies for investments.
4) RM: Management of risk and policies against it through an enterprise approach.
5) TO&C: Management of a treasury departments while creating effective communication between execs & treasury and aligning co’s aims & objectives with treasury operations.

Question 8

What ways can a treasury department respond to risk?

Answer 8

1) Cost-saving centre: Maxi profit through diligent investing, hedge selectively
2) Cost centre: With a hedge everything policy to minimize risk and max certainty
3) Profit centre: Take speculative positions in markets not related to the co.

Question 9

What are the 2 types of treasury authorities and how they operate?

Answer 9

1) Centralized: Authority given to HO
2) Decentralized: Authority given to local groups to manage own treasury needs

Question 10

What are the benefits & drawbacks of a centralized authority?

Answer 10

Benefits:
1) Single financial status.
2) Synergy of expertise.
3) Saves costs.
4) Reduces Rogue traders
Drawbacks:
1) Expensive to set up.
2) Demotivated subsidiaries.
3) Conflict of culture.
4) Local cash management better off with local.

Question 11

Benefits & drawbacks of a decentralized authority.

Answer 11

Benefits:
1) Local Authority.
2) Better alignment of a treasury policy.
Drawback:
1) Duplication
2) Loss of economies of scale
3) Need for staff
4) Loss of control & rouge traders

Question 12

What is risk and what types of risks do CT’s try to manage.

Answer 12

1) Risk: The deviation of actual outcome from expected which could lead to loss of capital(downside risk) or a gain(upside potential)

2) Types:
a) Market risks
Equity
Foreign Currency
Commodity
Interest rate(fixed & floating)
b) Credit risks(default risk)
c) Liquidity risk