Treasury Management

DEFINITION - The process of administering the financial assets and holdings of a business. The goal of most treasury management departments is to optimize their company's liquidity, make sound financial investments for the future with any excess cash, and reduce or enter into hedges against its financial risks. - The firm's handling of all financial matters, the generation of external and internal funds for business, the management of currencies and cash flows, and the complex strategies, policies, and procedures of corporate finance EXAMPLE Suppose, there are 90, 00,000 ad sense publishers and approximate $ 100 which company has to pay to each adsense publisher after one month. Now within 15 days, Google Inc. will choose that day when the price of dollar in pesos will be minimum. Suppose, if company paid on 21st February 2010 $100 to one publisher when the price of dollar is Php 46.50 and pays Php 2,139.00 and if the next day, price will decrease 0.5 dollar. Then, it means Google Inc. is in foreign currency loss Php 50 each publisher because, company has power to pay in next day and save Php 50 for each adsense publisher. If company has to pay $100, then company can receive loss of Php 45 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 government 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 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, 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 It is also function of treasury department to supply quick finance to company, when it needs the money. For this, a good network in financial market is required. Cash Management. Efficient collection and repayment of cash to both insiders and to third parties. Cash management clearly forms part of the treasurys core functions. In addition to dealing with payment transactions; cash management also includes planning, account organization, cash flow monitoring, managing bank accounts, electronic banking, pooling and netting as well as the function of in-house bank. Funding management. Planning and sourcing firms short, medium and long-term cash needs; participates in capital structure, forecasting of future. The core duties of the treasury also comprise the procurement of

finance and financial investments, and therefore topics such as money dealing, working capital finance, but also factoring. Corporate finance. Advises and involves in mergers and acquisition, capital structure, rights issue, etc. The corporate finance functions of treasury comprise medium and long term financing, particularly capital market instruments, ABS, group financing, credit, leasing, promotion instruments, shareholders loans and, in this instance, the handling, monitoring, terms, conditions, hedging, periods and contractual dates. Banking. Maintain good relationships with bankers and carry out initial negotiation with them for any short term loan. Looking after contacts with banks and rating agencies, as well as discussions with credit insurers and, if applicable, suppliers concerning periods allowed for payment, in conjunction with the procurement of finance, also form part of the treasurers core business. IMPACT OF EFFECTIVE TREASURY MANAGEMENT 1. Efficiency through a centralized management function and improved management of financial risks - Reduced transaction costs and payment risk - Fewer errors and increased transaction speed due to an implemented treasury system - Tying money up for varying periods of time (to avoid penalties) - Bank diversification 2. Better projection of cash flows and improved decision making - Otherwise, the company might pay incremental interest expenses because of overborrowing - Interest expense optimization, increased interest income - Sensitivity to market fluctuations 3. Effective resource allocation system - Maximize investments with excess cash

1. Efficiency through a centralized management function and improved management of financial risks Reduced transaction costs and payment risk a. Remittance information improves reconciliation process b. Electronic payments and collections Examples: Automated Clearing House, Wire Transfer, lockbox services Centralized payment processing Fewer errors and increased transaction speed due to an implemented treasury system Tying money up for varying periods of time (to avoid penalties) Bank diversificaton

2. Better projection of cash flows and improved decision making Otherwise, the company might pay incremental interest expenses because of overborrowing Interest expense optimization, increased interest income Sensitivity to market fluctuations

3. Effective resource allocation system Maximize investments with excess cash