Treasury management

Treasury management (or treasury operations) includes management of an enterprise's holdings, with the ultimate goal of maximizing the firm's liquidity and mitigating its operational, financial and reputational risk. Treasury Management includes a firm's collections, disbursements, concentration, investment and funding activities. In larger firms, it may also include trading in bonds,currencies, financial derivatives and the associated financial risk management. Most larger banks have whole departments devoted to treasury management and supporting their clients' needs in this area. Until recently, larger banks had the stronghold on the provision of treasury management products and services. However, smaller banks are increasingly launching and/or expanding their treasury management functions and offerings, because of the market opportunity afforded by the recent economic environment (with banks of all sizes focusing on the clients they serve best), availability of (recently displaced) highly-seasoned treasury management professionals, access to industry standard, third-party technology providers' products and services tiered according to the needs of smaller clients, and investment in education and other best practices. For non-banking entities, the terms Treasury Management and Cash Management are sometimes used interchangeably, while, in fact, the scope of treasury management is larger (and includes funding and investment activities mentioned above). In general, a company's treasury operations comes under the control of the CFO, Vice-President / Director of Finance or Treasurer, and is handled on a day to day basis by the organization's treasury staff, controller, or comptroller. Bank Treasuries may have the following departments:

A Fixed Income or Money Market desk that is devoted to buying and selling interest bearing securities A Foreign exchange or "FX" desk that buys and sells currencies A Capital Markets or Equities desk that deals in shares listed on the stock market.

In addition the Treasury function may also have a Proprietary Trading desk that conducts trading activities for the bank's own account and capital, an Asset liability management or ALM desk that manages the risk of interest rate mismatch and liquidity; and a Transfer pricing or Pooling function that prices liquidity for business lines (the liability and asset sales teams) within the bank. Banks may or may not disclose the prices they charge for Treasury Management products, however the Phoenix Hecht Blue Book of Pricing may be a useful source of regional pricing information by product or service.
If we have to describe treasury management, then we can state that it is the management of cash, fund, currency, bank and financial risk. So, it is an imperative tool of finance. In this management, finance manager checks the cash inflow and outflow. He makes the list of all receivable

amounts which will increase treasure house of company. He also tracks the dates in which he has to receive the fund from debtors. Under this management, he estimates all financial risk for investment of cash. All investment is on the basis of investment policy. Many organizations have separate treasury department. If company deals with foreign currency, then management of foreign currency risk is the duty of treasury department. Suppose, Google Inc. USA Company which is a MNC and it receives the fund from advertisers and shares with adsense publisher. A good treasury officer can give the advice to Google Inc. about when company should pay the bill of adsense publishers. Suppose, there are 90, 00,000 adsense publishers and approximate $ 100 which company has to pay to each Indian adsense publisher after one month. Now within 15 days, Google Inc. will choose that day when the price of dollar in Rupees will be minimum. Suppose, if company paid on 21st Feb. 2010 $100 to one publisher when the price of dollar is Rs. 46.5 and pays Rs. 2139 and if the next day, price will decrease 0 .5 dollar. Then, it means Google Inc. is in foreign currency loss Rs. 50 each publisher because, company has power to pay in next day and save Rs. 50 for each adsense publisher. If company has to pay $100, then company can receive loss of Rs. 45 Crore due to foreign currency loss. So, to manage foreign currency and control is major project under treasury management. In government departments, fund management is under treasury management. Treasury department makes map to collect for govt. treasure and decide how to use it for welfare works. Finance manager creates good relationship for getting locker facility at cheap rates and company can keep its important documents in locker of banks. These documents and commercial papers can be sold by banks in money market and company can take part in money market by indirect way. Finance manager also do the duty to sell companys fixed assets at high price and he also acquire the properties for company at cheap rate for effective utilization of treasure of company. Function of Treasury Management

1. To maintain the liquidity of business It is the main function of treasury management to maintain the liquidity of business. Without proper liquidity, it is risk for business to operate smoothly. By using cash flow analysis and working capital management. Treasury officer make good ratio of liquid assets and liquid liability. 2. To Minimize Currency Risk In above example of Google Inc. business, I have already explained that it is the function of treasury management to minimize the currency risk. For this, treasury managers touch with currency market of world. They analyze the reason of crisis in currency market. Sometime this crisis will be benefited for them because they have to pay less to other country for getting their service at cheap rates. 3. To provide quick finance to Company

Introduction To Foreign Exchange And Foreign Exchange Market (Part 1)

May 9th, 2009 / No comments yet More Sharing ServicesShare|Share on facebookShare on twitterShare on emailShare on print

We often hear terms like foreign exchange transactions and foreign exchange rates. Simply foreign exchange transactions are exchanges of one currency for another as each country has its own national currency or monetary unit. And an exchange rate is the rate at which one currency can be exchange for another. It is the price of one currency in terms of another. Next what is the foreign exchange market all about? Append below explanation on foreign exchange market and its functions: Foreign exchange market is where the majority of buying and selling of different currencies takes place.

Two main functions of the foreign exchange market are: To convert the currency of one country into other currencies To provide insurance against foreign exchange risks and the adverse consequences of unpredictable change.

Salient points to note: In financial markets like UK and America, tremendous foreign exchange transactions take place amongst the traders. Thepurpose of trading are for the import and export needs of companies and individual; for foreign direct investment; to profit from short-term fluctuations in exchange rates; to manage existing positions, to purchase foreign financial instruments, etc Also note that Central banks which act on behalf of theirgovernments even participate in the Foreign exchange market to influence the value of their currencies. One typical government is the Monetary Authority Of Singapore.

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What are the determinants of Foreign Exchange?

May 11th, 2009 / No comments yet More Sharing ServicesShare|Share on facebookShare on twitterShare on emailShare on print

In earlier part 1, we have a brief introduction of what are foreign exchange transactions, foreign exchange rate and market. So what determines a countrys foreign exchange rate? Append below are some three(3) major factors that determines or have an important impact on future exchange rate movements in a countrys currency: (A) PRICE INFLATION Salient points: The basics about price inflations theories which can impact the countrys future exchange rate: The Law of One Price: dictates that in competitive markets free of transportation costs and barriers to trade like tariffs, identical products sold in different countries must sell for the same price when their price is expressed in terms of the same currency Purchasing Power Parity(PPP): if the abovesaid Law of One Price is true for all goods & services, the Purchasing Power Parity(PPP) exchange rate could be found from any individual set of prices. By comparing the prices of an identical product in different currencies, it would be possible to determine the real or PPP exchange rate that would exist if markets were efficient. This theory advocates that the exchange rate will change if relative prices change.

Money Supply and Price Inflation: Inflation occurs when the quantity of money supply increases faster than output increases. Generally, the increase in a countrys money supply changes the relative demand and supply conditions in the foreign exchange market. (B) INTEREST RATES

Generally where inflation is expected to be high, the interest rate will also be high, because investors want compensation for the decline in the value of their money-this is known as Fisher Effect where it states that a countrys nominal interest rate (i) is the sum of the required real rate of interest(r) and the expected rate of inflation over the period for which the funds are to be lent(I)

( C ) MARKET PSYCHOLOGY On the short term/run, exchange rate movement is sometimes greatly influence by market/investors psychology.These psychological factors sometimes greatly impact the determining expectations of market traders to future exchange rates.- We call this the bandwagon effect. Market psychological factors are greatly influence by political factors, microeconomic events and others Example: George Soros, a currency speculator wreak havoc on the Thai Baht in 1997. His actions followed by others is a typical example of the aforesaid bandwagon effect. Incidentally, because of this, the Thai baht loss more than 50% of its value against the USD