Treasury management (or treasury operations) includes

management Management (or managing) is the administration of an organization, whether it is a business, a nonprofit organization, or a government body. It is the art and science of managing resources of the business. Management includes the activitie ...

of an enterprise's holdings, with the ultimate goal of managing 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

financial risk management Financial risk management is the practice of protecting economic value in a firm by using financial instruments to manage exposure to financial risk - principally operational risk, credit risk and market risk, with more specific variants as l ...

. 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. Most

bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...

s have whole

departments Department may refer to: * Departmentalization, division of a larger organization into parts with specific responsibility Government and military *Department (administrative division), a geographical and administrative division within a country, ...

devoted to treasury management and supporting their clients' needs in this area. 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 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. A number of independent treasury management systems (TMS) are available, allowing enterprises to conduct treasury management internally. Bank Treasuries may, in turn, have the following departments: * A

fixed income Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year and repay the prin ...

money market The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less. As short-term securities became a commodity, the money market became a compon ...

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 A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers ...

equities In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...

desk that deals in shares listed on the stock market. In addition, the Treasury function may also have an

asset liability management Asset and liability management (often abbreviated ALM) is the practice of managing financial risks that arise due to mismatches between the assets and liabilities as part of an investment strategy in financial accounting. ALM sits between risk ...

(ALM) desk that manages the risk of interest rate mismatch and liquidity; and a funds transfer pricing or pooling function that prices liquidity for business lines (asset sales teams) within the bank. Banks may or may not disclose the prices they charge for Treasury Management products.

Functions

The significant core functions of a corporate treasury department include:

Cash and Liquidity Management

Cash- and

liquidity management Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity, the ease with which an asset can be sold * Accounting liquidity In accounting, liquidity (or accounting liquidity) ...

is often described as treasury's 'primary duty.' Essentially, a company needs to be able to meet its financial obligations as they fall due, i.e. to pay employees, suppliers, lenders and shareholders. This can also be described as the need to maintain liquidity, or solvency of the company: a company needs to have the funds available that will enable it to stay in business. In addition to dealing with payment transactions; cash management also includes planning, account organisation, cash flow monitoring, managing bank accounts, electronic banking, pooling and netting as well as the functions of in-house banks.

Risk Management

Risk management is the discipline of managing financial risks to allow the company to meet its financial obligations and ensure predictable business performance. The aim of Risk Management is to identify, measure, and manage risks that could have a significant impact on the business' goals. It is important to note that the objective is not to eliminate all risk. Taking risk is a critical part of any business – "no risk no profit". See: risk appetite;

Enterprise risk management Enterprise risk management (ERM) in business includes the methods and processes used by organizations to manage risks and seize opportunities related to the achievement of their objectives. ERM provides a framework for risk management, which typic ...

. It is important, however, to take risks only in areas that the business has competitive advantage. For example, an automotive company will want to take risks in design and engineering. but will want to avoid risks in currencies and interest rates. On the other hand, a bank will be in a position to take risks in currencies and interest rates but will avoid operational and regulatory risks. See . Treasurers are then typically responsible for managing: *

Liquidity risk Liquidity risk is a financial risk that for a certain period of time a given financial asset, security or commodity cannot be traded quickly enough in the market without impacting the market price. Types Market liquidity – An asset cannot be s ...

: the company is unable to fund itself or is unable to meet its obligations; *

Market risk Market risk is the risk of losses in positions arising from movements in market variables like prices and volatility. There is no unique classification as each classification may refer to different aspects of market risk. Nevertheless, the most ...

(or price risk): changes in market prices (typically foreign exchange, interest rates, commodities) cause losses to the business; *

Credit risk A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased ...

: that a counterparty default causes loss to the business; * Operational risk: fraud or error cause losses to the business.

Corporate Finance

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 treasurer's core business. See and .

Regulation

Concerns about systemic risks in Over The Counter (OTC) derivatives markets, led to G20 leaders agreeing to new reforms being rolled out in 2015. This new regulation, states that largely standardized OTC derivative contracts should be traded on electronic exchanges, and cleared centrally by Central Counterparty/Clearing House trades. Trades and their daily valuation should also be reported to authorized Trade Repositories and variation margins should be collected and maintained. References: Corpcare: India’s first all-in-one corporate treasury & multi-family office platform. (https://www.corpcare.co.in)

References