Chapter 1: The Role of Treasury Management

What are the advantages/ disadvantages of centralized treasury?

A centralized treasury offers the advantages of stronger control, economies of scale, and lower operating costs. The advantages can be even greater for multinationals as there may be significant tax advantages based on the location of treasury. A disadvantage of a centralized treasury is that field office personnel have reduced autonomy.

Why are shared service centers (SSCs) typically deployed?

A shared service center is typically used to: 1. Reduce the costs of multiple or duplicate operations 2. Standardize processes 3. Improve the quality and timeliness of services 4. Increase strategic flexibility 5. Strengthen internal controls

What are the advantages/ disadvantages of decentralized treasury?

An advantage of a decentralized structure is that local subsidiary personnel possess familiarity with local business and banking practices, as well as intimate knowledge of languages, customs, and cultures. In a decentralized structure, field personnel are responsible for some daily treasury functions, but there is often a duplication of efforts— and resources— across units. Decentralized or foreign offices may also have a heavier burden in regards to compliance efforts, due to span-of-control issues and the increased need for coordination.

What are the eight tasks involved in daily cash management?

Daily treasury operations (e.g., cash management) activities may include: 1. Calculating the cash position 2. Monitoring cash balances on deposit at financial institutions 3. Collecting, concentrating, and disbursing cash 4. Investing and borrowing funds on a short-term basis when needed 5. Developing cash flow forecasts

What is required for a director to be considered independent under NYSE standards?

For a director to be considered independent under the NYSE standards, the board must determine that the director has no material relationship with the listed company, either directly or as a partner, shareholder, or officer of the organization.

Why is bank relationship management important?

Most companies have multiple banking relationships to limit counterparty risk and to enhance the competitive process, thereby increasing the likelihood of future service.

What is a key challenge to corporate governance?

One of the key challenges in corporate governance relates to the separation of ownership and control; shareholders own the company, but executive officers control the firm's operations. This separation of ownership and control is a potential challenge because management may be able to make decisions with little oversight by the shareholders.

What is the downside to making treasury a cost center?

Organizing treasury as a cost center is a common approach because treasury is usually regarded as a support function and is not expected to directly earn a profit for the firm. A downside to this organizational structure is that management may focus on the cost of treasury operations and not the value provided by the function, leading to difficulties in obtaining an adequate budget and staff.

What activities does the board of directors typically grant treasury the authority to perform?

The board typically grants the treasury function the authority to: 1. Open, close, and modify bank accounts 2. Establish credit facilities 3. Oversee investments 4. Issue debt and equity securities 5. Devise, implement, and execute risk management strategies

Which of these objectives represent core cash management activities?

The first four objectives represent core cash management activities performed by treasury professionals. Cash management activities ensure that the firm can meet its short-term obligations. Poor cash management can cause even profitable companies to experience financial distress.

What are the major objectives of treasury management?

The major objectives of treasury management include: 1. 1. Maintain liquidity 2. Optimize cash resources 3. Maintain access to short-term financing 4. Manage investments 5. Maintain access to medium- and long-term financing 6. Manage risk 7. Manage information and technology 8. Collaborate with other departments and share financial information 9. Manage external parties

What are the primary responsibilities of the treasurer?

The treasurer is primarily responsible for: 1. Developing strategy and implementing treasury policies and procedures 2. Overseeing daily liquidity and cash management 3. Short- and long-term investing 4. Arranging both short- and long-term external financing 5. Managing financial risks 6. Managing relationships with banks/ financial institutions and other service providers 7. Managing domestic and international payments 8. Overseeing financial reporting and compliance

What checks and balances do corporate governance procedures establish to protect shareholders?

To protect shareholders, corporate governance procedures establish a set of checks and balances to place limits on executive prerogatives and to monitor management performance. Examples include the board of directors (especially independent directors), shareholder meetings, independent external auditors, and regulatory agencies.