Description
functions of treasury department, structure of treasury department and whether treasury is service center ot profit center.
Treasury Management
What is a Treasury ?
• A well managed treasury is what often distinguishes successful enterprise from one which is mediocre. • Treasury Management is nothing but funds management. • Treasury Management is arranging
» » » » » Right amount, at the Right time, in the Right form, through Right products, at Right cost.
• Treasury Management is the coordination and synchronization of all activities impacting the financial position of the company
Role of a Treasury
• Role of Treasury has changed dramatically. – From a narrow role • Of a facilitator
– Raising funds – Deploying idle funds – Hedging forex exposures
• With few analytical tools – To a dynamic,broad & pro-active role
• • • • • Providing prompt & efficient service to other departments Advice to other departments Involved in long-term planning Using quantitative tools Contributing additional profits – profit center
• What has changed ?
– – – – – Age of uncertainty Floating exchange rates Globalization of products & markets Deregulation of financial markets Financial market innovations
– Derivatives
– Instruments proliferation – Complex instruments
– Risks have become difficult to identify, understand & measure – Rapid technological changes
– Hardware & software- speed, methods & tools – Information availability and Communications – Analytical and Forecasting tools
• General Responsibilities
– Forecasting & Planning
» Short Term and Long Term » Strategic & Tactical Plans
– Major Investment & Financing Decisions
– – – – Expansion Plans and capital needed Mix of internal funds and external financing Debt or Equity Short-Term funds or Long-Term Funds
– Coordination & Control – Interaction in Capital Money Markets – Interaction in Forex Markets
• Treasury responsibilities should be defined in a broad manner to allow it to be pro-active & dynamic.
Bank Treasury Exclusively financial transactions Caters to customer needs Provider of treasury service products Generally expected as a profit centre Trading actively
Corporate Treasury Financial and commodities Looks after group needs only User of treasury servise products Need not be a profit center Hedging and minimisation of risks
Risk Management
– Traditionally the dealers handled the risk – Concerned about cash position and movement of rates (forex and gilts) – Volatile markets entail attention to
• effect of changes on the balance sheet • Value at risk • Changes in he composition of asses and liabilities instituted by the dealing room • Expected changes in the financial environment and the possible effect on the balance sheet
– Higher levels of trading require greater concern for risk management – Need for “real-time” monitoring
• What should be the core function of the treasury ?
– Facilitator • Reactive strategy • Transactions facilitators • Minimising overall financial risk • Funds management – Profit center • Facilitator • Trading activity
– Undertaking exposures with no specific match with natural exposures of the firm
• Expected to generate profits • Adds its own risk to overall risk • Risk taking capacity of the firm
• Functions and Activities
– Banking Relationships – Cash Management
• Transactional requirements • Precautionary balances • Speculation – react immediately to good prices
– – – – – – – –
Forecasting interest rates & forex trends Track central bank policy & requirements Asset Liability Management Risk management
• Identify, measure and manage
Long-term Financing Credit Management Dividend Policy Insurance needs of the company
Structure of a Treasury
• Front Office or Dealing Room
– Actual deals contracted – Requires good infrastructure
• Mid Office
– – – – – – Research and monitoring of market Development of policy / strategy Setting up of exposure limits, dealer limits etc Estimation of and monitoring Value at Risk Compliance with statutory requirements MIS
• Back Office
– Settlement of the deals and related paper work – Submission of bids etc – Reconciliation of accounts
Centralized Treasury ?
• FOR – Operationally more efficient – Better control – Can have a dynamic dealing strategy – Avoid problems of different quotes in the market – Less reconciliation problems • AGAINST – Lose out on regional opportunities – No competition between different profit centers – Slower information flows
Service Center or Profit Center ?
• Treasury has to be a facilitator or service center • But profit center with profit targets – Case of Metallgesellschaft , Barrings, Procter and Gamble – Understand the nature of their position in financial markets and to understand the ramifications of market movements on your financial positions – Proper skills, infrastructure, supervision – Monitoring and risk management – Is it worth it ?
doc_854998833.pptx
functions of treasury department, structure of treasury department and whether treasury is service center ot profit center.
Treasury Management
What is a Treasury ?
• A well managed treasury is what often distinguishes successful enterprise from one which is mediocre. • Treasury Management is nothing but funds management. • Treasury Management is arranging
» » » » » Right amount, at the Right time, in the Right form, through Right products, at Right cost.
• Treasury Management is the coordination and synchronization of all activities impacting the financial position of the company
Role of a Treasury
• Role of Treasury has changed dramatically. – From a narrow role • Of a facilitator
– Raising funds – Deploying idle funds – Hedging forex exposures
• With few analytical tools – To a dynamic,broad & pro-active role
• • • • • Providing prompt & efficient service to other departments Advice to other departments Involved in long-term planning Using quantitative tools Contributing additional profits – profit center
• What has changed ?
– – – – – Age of uncertainty Floating exchange rates Globalization of products & markets Deregulation of financial markets Financial market innovations
– Derivatives
– Instruments proliferation – Complex instruments
– Risks have become difficult to identify, understand & measure – Rapid technological changes
– Hardware & software- speed, methods & tools – Information availability and Communications – Analytical and Forecasting tools
• General Responsibilities
– Forecasting & Planning
» Short Term and Long Term » Strategic & Tactical Plans
– Major Investment & Financing Decisions
– – – – Expansion Plans and capital needed Mix of internal funds and external financing Debt or Equity Short-Term funds or Long-Term Funds
– Coordination & Control – Interaction in Capital Money Markets – Interaction in Forex Markets
• Treasury responsibilities should be defined in a broad manner to allow it to be pro-active & dynamic.
Bank Treasury Exclusively financial transactions Caters to customer needs Provider of treasury service products Generally expected as a profit centre Trading actively
Corporate Treasury Financial and commodities Looks after group needs only User of treasury servise products Need not be a profit center Hedging and minimisation of risks
Risk Management
– Traditionally the dealers handled the risk – Concerned about cash position and movement of rates (forex and gilts) – Volatile markets entail attention to
• effect of changes on the balance sheet • Value at risk • Changes in he composition of asses and liabilities instituted by the dealing room • Expected changes in the financial environment and the possible effect on the balance sheet
– Higher levels of trading require greater concern for risk management – Need for “real-time” monitoring
• What should be the core function of the treasury ?
– Facilitator • Reactive strategy • Transactions facilitators • Minimising overall financial risk • Funds management – Profit center • Facilitator • Trading activity
– Undertaking exposures with no specific match with natural exposures of the firm
• Expected to generate profits • Adds its own risk to overall risk • Risk taking capacity of the firm
• Functions and Activities
– Banking Relationships – Cash Management
• Transactional requirements • Precautionary balances • Speculation – react immediately to good prices
– – – – – – – –
Forecasting interest rates & forex trends Track central bank policy & requirements Asset Liability Management Risk management
• Identify, measure and manage
Long-term Financing Credit Management Dividend Policy Insurance needs of the company
Structure of a Treasury
• Front Office or Dealing Room
– Actual deals contracted – Requires good infrastructure
• Mid Office
– – – – – – Research and monitoring of market Development of policy / strategy Setting up of exposure limits, dealer limits etc Estimation of and monitoring Value at Risk Compliance with statutory requirements MIS
• Back Office
– Settlement of the deals and related paper work – Submission of bids etc – Reconciliation of accounts
Centralized Treasury ?
• FOR – Operationally more efficient – Better control – Can have a dynamic dealing strategy – Avoid problems of different quotes in the market – Less reconciliation problems • AGAINST – Lose out on regional opportunities – No competition between different profit centers – Slower information flows
Service Center or Profit Center ?
• Treasury has to be a facilitator or service center • But profit center with profit targets – Case of Metallgesellschaft , Barrings, Procter and Gamble – Understand the nature of their position in financial markets and to understand the ramifications of market movements on your financial positions – Proper skills, infrastructure, supervision – Monitoring and risk management – Is it worth it ?
doc_854998833.pptx